China’s GigaCloud Goes Public in U.S., Bucking Delisting Trend
E-commerce firm generates all of its revenue outside China and says it is prepared to switch auditors if needed to satisfy U.S. regulatory requirements
E-commerce company GigaCloud Technology Inc. made its debut on the Nasdaq Stock Market on Thursday, a rare instance of an initial public offering by a Chinese company in the U.S. as the two countries head toward a financial decoupling.
GigaCloud, an online platform that connects manufacturers of bulky consumer items with buyers around the world, raised $36 million in gross proceeds after selling 2.94 million Class A shares. The deal valued the company at $486 million. The amount raised could increase to $41 million if the underwriter sells more shares to exercise the so-called overallotment options, typically when the stocks are in high demand.
The company’s share price was recently up 6.5% to $13.05, giving back some of its gains after soaring much higher in morning trading.
Based in Suzhou, eastern China’s Jiangsu Province, GigaCloud sources large-parcel items such as furniture, home appliances and fitness equipment from China and elsewhere. It sells them to buyers and retailers in the U.S., Europe, Japan and other places, while providing logistics, warehousing and technological solutions in the process. The company counts the U.S. as its largest market, where it generates more than half of its revenue. Its customers include sellers on Amazon.
Such a business model has enabled the company to sail through U.S. regulatory hurdles even after the Securities and Exchange Commission tightened the screws on Chinese IPOs. Although the company has its head offices in China, where it has most employees, GigaCloud generates all of its revenue from outside of the country. Chief Financial Officer David Lau said that makes GigaCloud less susceptible to potential regulatory changes in China.
GigaCloud raised $36 million in gross proceeds in a deal that valued the company at $486 million; a company truck in Los Angeles.Photo: GigaCloud Technology Inc.
The company also said it is willing to change auditors if needed to comply with U.S. law so it could avoid being delisted three years later.
“Like many other Chinese companies planning to list in the U.S., we also hit a pause after the Didi instance. But we decided to move forward because we want to list in a market close to our customers,” Mr. Lau said, referring to Beijing’s regulatory assault on ride-hailing giant Didi Global Inc. last year.
Chinese authorities launched a probe into Didi days after its New York IPO in July 2021. Around the same time, the SEC turned harsher on Chinese IPOs, citing regulatory risks. Government scrutiny from both sides of the Pacific saw Chinese listings in the U.S. almost grind to a halt. Only eight Chinese companies—including three blank-check firms—have been listed in the U.S. since August 2021, raising a total of $641 million, according to Dealogic data. By comparison, billions of dollars were raised on average each year since Alibaba Group Holding Ltd.’s landmark IPO in 2014.
GigaCloud, which has this warehouse in Atlanta, is an online platform that connects manufacturers of bulky consumer items with buyers around the world.Photo: GigaCloud Technology Inc.
Didi eventually delisted from the New York Stock Exchange and was fined $1.2 billion by China for cybersecurity and other regulatory breaches.
A decadelong audit standoff between Washington and Beijing is threatening to boot Chinese companies from U.S. stock exchanges. U.S. accounting regulators can’t inspect the audit working papers of those companies, and failing to do so for three consecutive years will result in delisting, according to provisions of the Holding Foreign Companies Accountable Act.
Several companies have taken steps to comply with the act, such as changing their SEC filings to U.S. based auditors, as the two countries continue to be at loggerheads over audit inspections.
GigaCloud, which currently engages in the China office of KPMG as its auditor, is prepared to switch to an accounting firm that can be inspected by U.S. regulators, should the two countries fail to resolve the issue, according to Chief Executive Larry Wu. “Neither our revenue nor data are in mainland China. There shall be no hurdles if we were to change to an auditor based outside of China,” he said.
The company generated $414 million in revenue and $29 million in net income last year.
The path chartered by GigaCloud could lend confidence to future Chinese IPOs and their investors, said Frank Hurst Lin, general partner of venture-capital firm DCM and an early investor in GigaCloud. “Investors in both private and public markets are not writing off China at all. It all boils down to the individual companies and entrepreneurs,” he said.
DCM, which manages $4.2 billion, has several companies in its portfolio exploring a listing in the U.S., Mr. Lin added.