what it means for investors, start-ups

BEIJING — Investors may have to think twice about whether to bet on Chinese tech start-ups as new regulations are imposed on mainland companies looking to go public in the U.S.

If listing in Hong Kong becomes the only viable option, fund managers will likely need to rethink their investment strategies, as there are practical differences with how New York stock exchanges handle initial public offerings.

Since the summer, both China and the U.S. have raised the bar for Chinese companies wanting to trade in New York.

Not only investors are affected. Chinese companies looking to raise capital face greater uncertainty about their path to listing on public stock markets, and possibly lower valuations too, analysts said.

Beijing’s actions have more imminent consequences. From Feb. 15, the increasingly powerful Cyberspace Administration of China will officially require data security reviews for certain companies before they are allowed to list abroad.

Putting aside the technical complexities of why and how Chinese companies have worked with foreign institutional investors to list in the U.S., the new regulations could mean that similar IPOs in the future will likely need to go to Hong Kong.

For tech companies, that could mean lower valuations than if they listed in New York, said Richard Chen, managing director with Alvarez & Marsal’s Transaction Advisory Group in Asia.

He said a market familiar with Silicon Valley could put a higher price on a tech company’s growth potential, versus Hong Kong’s greater focus on profitability and familiarity with business models for companies operating physical stores or working in fields such as semiconductors and precision engineering.

With new Chinese regulations, Chen said his clients — mostly traditional private equity firms — are looking more at traditional industrial companies and businesses that sell to other businesses, or sell to consumers without relying much on technology.

“That’s what our clients are taking a think about: ‘Does it make sense to look at those sectors if ultimately it will be a challenge to list in the U.S. given the regulatory concerns?'” Chen said. He added that clients are also rethinking their investment strategies with consideration for whether their minimum goals for a return might be harder to achieve because a Hong Kong listing resulted in a lower valuation.