(Yicai) Aug. 17 -- Initial public offerings by Chinese companies on overseas markets have fallen sharply since regulations were tightened in March. It has also become more difficult for private equity funds to withdraw their investment.

In the first half, 29 companies went public in Hong Kong raising HKD17.8 billion (USD2.3 billion). This is significantly less than last year, which was already considered to be a bad year, when 80 Chinese firms listed, raising HKD103.4 billion (USD13.2 billion).

Chinese companies going public abroad must first pass a review by the China Securities Regulatory Commission, according to The Trial Administrative Measures for Overseas Securities Offerings by Chinese Companies that came into force on March 31.

Changes in the regulatory process have lengthened the time needed for offshore listings, the Board secretary of a new energy firm that is preparing to go public in Hong Kong told Yicai. And different documents need to be filed in each country, so a lot of time is needed.

The new rules are much stricter. China now requires all firms to comply with the Accounting Law and other laws, to prevent fraudulent companies from going public, Li Shoushuang, a senior partner at Beijing Dacheng Law Offices, said previously.

In the US, from May to July, only two Chinese firms, Shanda and Chijet Motor, went public through backdoor listings.

It is becoming harder to list in the US, a law firm partner told Yicai. For example, the VIE structure, which is where an offshore entity owns a business in China and is often used by Chinese companies to raise funds on overseas exchanges, will be a focus of the review.

It has also become more difficult for venture capital funds to withdraw from overseas IPOs. Most funds over-emphasize pre-investment but don’t pay enough attention to how to exit, said Wang Shu, legal director of Bauhinia Capital. Although IPOs can only meet a small part of the liquidity needs of venture capitalists, due to their high return, it is usually sufficient to cover the overall income of the fund,

Now, due to the limitations on IPO exits, funds have had to shift their focus to other ways to withdraw their money, such as through buybacks, mergers and acquisitions or liquidation. This means fund managers have to spend more time and effort on projects that may not be as successful as IPOs and may require more time and resources to quit, he added.

Editor: Kim Taylor