As observed by MG Partners, Nasdaq has submitted a proposal to the U.S. Securities and Exchange Commission (SEC) to amend its listing rules, significantly raising the thresholds for IPOs. (Click to view: Nasdaq Proposes Revised Listing Standards, Increasing Minimum IPO Fundraising Requirement to $25 Million) This article focuses on analyzing how Chinese companies can navigate the challenges under Nasdaq''s new rules.

Nasdaq recently submitted a proposal to the SEC to amend its listing rules, with three core changes. First, it raises the listing thresholds: new companies listing under the "net profit standard" will see the minimum public market value requirement increase from $5 million to $15 million. Second, it accelerates the delisting process for companies with a market value below $5 million and listing deficiencies, speeding up suspensions and delistings. Third, it introduces special requirements: new listed companies must raise a minimum of $25 million in their IPO (or 25% of the equivalent stock value), excluding secondary share transfers. If approved by the SEC, the new listing standards will take effect soon.

If the new rules take effect, the impact on already-listed Chinese companies will mainly manifest as increased delisting risks and higher compliance costs. Moreover, companies planning to list after the new rules take effect will need to adjust their preparations accordingly.

How Should Chinese Companies Respond?

For already-listed companies, on the one hand, delisting risks will significantly increase. Low-market-cap companies will be the first to face delisting threats, with shorter rectification periods and stricter "$1 delisting" rules. On the other hand, liquidity requirements will be heightened, increasing the cost of maintaining listing status. Companies will need to invest more resources in market value management and strengthening investor communication.

For companies not yet listed but planning to IPO in the U.S., small-cap listings may require a longer timeline; otherwise, they risk wasting time and money. Companies with long-term low market capitalization and low liquidity ("zombie stocks"), those with compliance deficiencies or financial issues, businesses with questionable models or regulatory risks, and small and medium-sized enterprises that have recently listed through small-scale IPOs or reverse mergers face higher delisting risks.

Firstly, to navigate the current deadlock, these companies need to optimize their financial metrics. By strengthening cost control, optimizing product structures, enhancing product value, and expanding market share, they can increase net profit levels and improve profitability. At the same time, they should rationally plan their financing structures, increasing shareholder equity through internal accumulation or external financing to meet the higher public market value and fundraising requirements.

Additionally, they should plan their financing strategy/timeline rationally. Companies need to redesign their financing plans according to the new rules to ensure that the scale of new share issuance meets the minimum fundraising requirement of $25 million. They can consider extending the Pre-IPO financing chain, such as adding Series B or C rounds, to raise sufficient funds through PE/VC before listing. They should also plan their financing schedule in advance to avoid impacting the listing process due to last-minute adjustments to valuation systems.

Secondly, among various coping strategies, the SPAC listing model combined with mergers and acquisitions offers a viable path for Chinese companies seeking to list in the U.S. SPAC, or Special Purpose Acquisition Company, operates uniquely. It begins with experienced sponsors establishing a cash-only "shell company" listed on exchanges like Nasdaq. Within a specified period (typically 18-24 months), the SPAC, leveraging its professional team’s market insights, seeks out target companies with high growth potential for merger. Upon completion, the target company gains listed status through the SPAC, quickly achieving listing and financing.

SPACs are already-listed cash shell companies, making mergers with SPACs an easier route to becoming a public company. Compared to traditional IPOs, the SPAC model offers significant advantages: a more streamlined process, substantially reduced time costs (typically completing SPAC and De-SPAC transactions in as little as six months, compared to the longer duration of traditional IPOs), and cost benefits since the SPAC has already completed its IPO fundraising.

Currently, adopting the SPAC listing model via mergers can address the issue of insufficient circulating shares. Under Nasdaq''s new rules, the minimum IPO fundraising requirement has sharply increased to $25 million, hindering many Chinese companies due to fundraising challenges. SPAC mergers can release more circulating shares, making it easier to meet the $25 million listing requirement. The public shares issued by SPACs during their IPO phase (typically in "Units" comprising common shares and warrants) automatically convert into shares of the new company post-merger. Companies avoid the need to raise large sums during the initial public offering, easing financial pressure and allowing them to focus on business development and value enhancement.

Thirdly, considering mergers with already-listed companies is another strategic option. Stricter delisting requirements will inevitably leave many struggling listed shell companies. Integrating assets through mergers with these shells can ultimately achieve listing. Chinese companies can, based on their strategic plans, target synergistic companies within the same industry or related supply chain/industrial chain for mergers, attracting investor attention and enhancing post-listing market performance.

"This move by Nasdaq to raise the rules is a targeted strike against the abundance of small-cap Chinese stocks that have engaged in pump-and-dump schemes," analyzed Mr. Yang Jie, China President of AGBA (Asia) Capital Group.

"In short, companies should not list just for the sake of listing. They need to focus on fundamentals, scale up, and improve profitability. This way, whether listed or not, they can achieve long-term development and provide better returns to shareholders and investors after going public," stated Mr. Lau Pak Hang, Vice President of AGBA (Asia) Capital Group. We will continue to monitor the progress of this listing adjustment proposal. Thank you for your attention.

Compiled based on the latest media news, information from Nasdaq’s official website, financial reports, and other publicly available content.