This recent Forbes article about chinese entrepreneurs resorting to getting second passports in order raise capital in an IPO overseas caught my eye:
In an age of offshore banking and investing, the use of far-flung shell companies in corporate structures in Asia is commonplace. The majority of Hong Kong’s public companies are domiciled in low-tax havens, a legacy of the 1997 handover to China that spooked many tycoons. So when Zhang Lan decided last year to file for an IPO in Hong Kong for her restaurant group South Beauty, she reorganized her holdings under an entity in the Cayman Islands.
However, Zhang went a step further than other aspirant stock issuers. She didn’t just move her company offshore. She did the same to herself, applying for fast-track citizenship in the Caribbean state of St. Kitts & Nevis under an investment scheme. Three months later a passport was delivered to her office in Beijing.
But it has come at a high personal cost. By giving up her Chinese citizenship she exposed herself to scathing public criticism of her patriotism. Last November she resigned from a political sinecure after it was revealed that she held a St. Kitts passport.
Zhang’s tale is an extreme example of the hoops that Chinese entrepreneurs must jump through to raise long-term capital. Shut out at home, some Chinese companies switched their attention to overseas capital markets.
Yet the barriers remain high for entrepreneurs. Under Chinese law, companies also need multiple approvals from regulators and agencies to list overseas; political clout usually trumps business bona fides. This is where a second passport comes in handy, since a foreigner doesn’t need a nod from Beijing to issue stock. A securities lawyer in Hong Kong says he sees plenty of “exotic destinations” in the nationalities of directors in Chinese IPO prospectuses. “It’s the unintended consequences of a well-meaning law,” he says.