An Internet and industrial business subsidiary of Taiwanese consumer electronics firm Hon Hai Precision Industry Co. (Foxconn) has obtained approval from Chinese regulators for an A-share IPO in record time. The unit, Foxconn Industrial Internet Co., was approved for an IPO in China in just 36 days, compared to a usual wait time of one to two years or longer.
The "special treatment" for Foxconn Industrial signals that Beijing may be more determined to keep the so-called new economy companies within its borders, instead of seeing them list offshore, mostly in Hong Kong or New York. Foxconn Industrial makes electronic devices, cloud service equipment and industrial robots.
The quick approval comes after an official at the China Securities Regulatory Commission (CSRC) made public comments earlier this months that China will continue to deepen IPO reform this year. Rumors also spread last week that Beijing may consider allowing technology companies to list in China without having to wait in the IPO queue. Earlier in January, another CSRC official said that "good enterprises" should stay in China and should be allowed to list on exchanges quickly.
Foxconn Industrial benefited from a "green pathway" channel that exists under Chinese listing rules to more rapidly approve "exceptional" IPO applicants. Under this scenario, companies do not need to wait in the long IPO queue that currently has around 800 companies awaiting regulatory review and approval.
Technically, Foxconn Industrial is not qualified to apply for an A-share listing as the company has been in operation for less than three years. The company also falls short of elaborate listing requirements related to revenue and net income levels. To get around this, Foxconn required special permission from the State Council, according to China’s listing rules.
Parent Foxconn will benefit from the planned IPO on the Shanghai Stock Exchange because companies listed on mainland Chinese exchanges generally receive higher valuations than on other markets due to limited investment options and a relatively closed financial system. A number of U.S.-listed Chinese companies that subsequently listed A-shares were able to achieve valuations 300% higher than their prior valuation in New York.
Foxconn Industrial said early that it plans to use the IPO proceeds to fund projects worth RMB27.3 billion (US$4.31 billion) in smart manufacturing, cloud computing and 5G solutions. Around 10% of the unit’s shares would be converted to floating stock, with parent Foxconn holding around 85% of the shares.
Parent Foxconn is an investment holding company with 31 subsidiaries inside China and 29 offshore subsidiaries, with 269,049 employees in total. Foxconn recorded revenues of RMB273 billion, RMB272 billion and RMB355 billion from 2015 to 2017. It’s net profits were RMB14 billion, RMB14 billion and RMB16 billion during the three-year period, respectively.