Chinese IPOs return to New York with a whimper

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The sign showing the logo of Alibaba Group Holding is seen on the facade of the New York Stock Exchange before the company's initial public offering (IPO) September 19, 2014. REUTERS/Lucas Jackson

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HONG KONG, Nov 2 (Reuters Breakingviews) - What makes a Chinese initial public offering Chinese? Shares of LianBio (LIAN.O) fell 14% on their first day trading in New York on Monday after raising $325 million. It touts a foreign domicile and U.S. backers but most of its business is in the People's Republic. Investors who once loved such hybrids have good reason to distrust them now.

On paper, LianBio’s corporate structure straddles a geographic fence. The biotechnology company, founded by a U.S. private equity firm, is incorporated in the Cayman Islands and headquartered in both Shanghai and Princeton, New Jersey. Unlike the majority of New York-listed Chinese outfits, LianBio relies on local subsidiaries to run its China operations instead of using a complex offshore structure known as variable interest entities. It also does not handle sensitive data and uses American auditors.

Such a construct might have been more welcomed by investors. Since ride-hailing group Didi Global's (DIDI.N) catastrophic listing in late June, regulators in Beijing have been cracking down on VIEs read more and tightening cybersecurity rules read more . Last year, lawmakers in Washington passed legislation that would kick Chinese firms off U.S. exchanges if they fail to comply with American auditing standards. LianBio, which is the first Chinese issuer to return to New York since Didi, was seen by some investors as being more American and therefore exposed to less regulatory risks, according to financial publication IFR.

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Yet the negative market reaction shows that doing things differently is not sufficient to distract from underlying risks. The company has yet to generate any revenue, but its model depends on it being a gateway for global pharmaceutical companies into China, where the majority of its operations and assets are. LianBio's prospectus flags a deluge of regulatory risks; indeed it may have needed Beijing's approval to go public abroad in the first place. The disappointing debut bodes ill for other Chinese companies still holding out on a New York listing.

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- Shares of biotechnology company LianBio closed at $13.70, down 14.4% from their initial public offering price on Oct. 2 in New York. The company raised $325 million.

- The company, which is incorporated in the Cayman Islands and has headquarters and operations in both the United States and China, is the first Chinese company to go public in the United States since ride-hailing company Didi Global's $4.4 billion offering in June, according to Dealogic.

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Editing by Una Galani and Katrina Hamlin

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