The Shanghai Stock Exchange (SSE) has withdrawn approval for Lenovo's listing on the bourse.
Lenovo teased the float in January 2021 when a investor communiqué [PDF] explained that the company planned to issue Chinese depositary receipts (CDRs), totalling no more than ten per cent of existing shares, on the Shanghai Stock Exchange's Science and Technology Innovation Board (SSE STAR).
At the time Lenovo told investors the proceeds "are intended to be used for research and development of new technologies, products and solutions, strategic investments in related sectors, and replenishment of the Company's working capital".
An October 4th announcement [PDF] advised that Lenovo had submitted its application to the SSE and subsequently "received a letter issued by the SSE confirming acceptance of the application".
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But on the 8th the SSE popped out its own document [PDF] stating that Lenovo still needs to meet certain conditions and obtain regulatory approvals before the bourse could finalise approval of the float.
Which was a very unusual thing for the SSE to do because it must have known of Lenovo's October 4th announcement it had approval to list and that announcements of that sort are not made lightly. Just what happened between October 4th and 8th is not known. And the SSE has not suggested Lenovo did something to earn its new stance.
On October 10th, Lenovo pulled the plug, with a document [PDF] that states the SSE's actions mean "the validity of the financial information in the Prospectus may lapse during the vetting process of the application". And as the purpose of a prospectus is to offer all the info investors need to make a wise decision, the regulatory approvals and conditions that the SSE wants must be sufficiently substantial that they make the current prospectus misleading to investors.
Yet Lenovo's statement also states: "The Group's business operations are in good condition as usual. The withdrawal of the application is not expected to give rise to any adverse impact on the financial positions of the Group."
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Just what the SSE wants Lenovo to do is unclear. As is whether the SSE alone raised those concerns, or if Chinese regulators are driving the change.
Whatever the source and nature of the new requirements, investors are worried about them – Lenovo's shares have sunk 17 per cent since last week.
The incident has been compared to Beijing's November 2020 cancellation of Ant Group's IPO. Ant Group, however, had pioneered lending practices that Beijing found potentially destabilising and worryingly hard to regulate.
Lenovo poses no such obvious threat to China. Indeed, the company is just the sort of firm China usually adores, as it is a world-class global player with a widely trusted brand that therefore carries Chinese soft power to the world.
But Lenovo also pays enormous salaries to some top execs, and that's out of step with Beijing's recent insistence that big business must work towards "common prosperity". That new push has seen plenty of big tech companies announce enormously expensive social responsibility initiatives. Maybe Lenovo is sufficiently out of step that it needs to be sent a message.
Investors also have reason to be unhappy that Lenovo has missed out on the cash the Shanghai float would have delivered, as the company's smartphone and datacentre businesses have never exactly demonstrated rude health and the PC market remains volatile. ®