Registering offshore, through so-called VIE’s or variable interest entities, is more popular than ever for Chinese companies, even though the Chinese government tries to stop this circumventing trick. Tencent Music Entertainment was the last one to use it for its IPO and get away with it because investors seldom read the disclosure, says Paul Gillis, accounting professor at the Peking University, at the Nikkei Asian Review. And for good reasons.
The Nikkei Asian Review:
As with the Tencent Music prospectus, VIE risks are regularly disclosed in the IPO process — for those paying enough attention.
Referring to Tencent Music’s discussion of its use of VIEs, Paul Gillis, an accounting professor at Peking University in Beijing, said: “It is extensively disclosed, but the filling is 300 pages long. Many investors do not read it.”
Meanwhile, it remains unclear when Beijing will move forward with the draft foreign investment law, as Tencent Music’s prospectus notes.
Said Gillis, “If investors cannot stand ambiguity, they should stay out of China.”
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