Enabling IPO Success for Chinese Companies in the US
In this month’s edition of Lawyer Monthly, we hear exclusive insight into Lichen China Limited’s $16 million initial public offering on the Nasdaq Stock Market and expertise surrounding Chinese companies’ IPO prospects in the US from Jason Ye, Partner and Co-Chair of the Asia Practice at Ortoli Rosenstadt LLP.
Lichen China Limited’s $16 Million Initial Public Offering on Nasdaq
Ortoli Rosenstadt LLP represented Lichen China Limited on its $16 million listing on the Nasdaq Stock Market.
Lichen China Limited is a specialised taxation and financial service provider based in China. It has now announced the closing of its initial public offering (IPO) of 4,000,000 Class A ordinary shares at a public price of $4 per share. Trading of these Class A ordinary shares on the Nasdaq Capital Market began on 6 February 2023 under the ticker symbol “LICN”.
Ortoli Rosenstadt LLP advised Lichen China Limited with a team including Jason Ye (Partner and Co-Chair of Asia Practice), Yarona L Yieh (Counsel), Grace Bai (Associate) and Crystal Hsu (Associate).
An Interview with Jason Ye at Ortoil Rosenstadt LLP
Could you please give us some background into Lichen China Limited and its IPO plans?
Lichen China Limited, through its operating subsidiaries, is one of the leading financial and taxation service providers in China. They have operated as a dedicated financial and taxation solution service specialist in China for over 18 years, focusing on providing (i) financial and taxation solution services; (ii) education support services; and (iii) software and maintenance services in China. Leveraging their relationships with numerous local educational institutions, their expertise in the financial and taxation solution services market and experience in developing financial and taxation training and analysis software, the company also offers software product to enterprise customers, universities, colleges and educational institutes.
Lichen’s IPO was significant in a sense that it was the first small-cap IPO by a China-based issuer to be listed on the Nasdaq in 2023. Going into 2023, there was some uncertainty given the market condition at the time and the geopolitical environment between China and US as a backdrop. Everyone in the industry was paying close attention to Lichen to see on the one hand, whether it would be approved by the regulators as a Chinese issuer and on the other hand, whether it would successfully close its offering in a rather soft market.
Fortunately, and giving credit to the underwriter, Univest Securities, the company was able to get past the finish line and successfully list on the Nasdaq on 6 February 2023, during the Chinese New Year celebration period. The deal gave confidence to the market because everyone saw that the US stock market is still welcoming of China-based issuers and companies can still raise significant amount of money to help expand their business even though the equity market has been slow as of late.
Can you tell us about the role that you and your team played relating to the IPO?
Lichen engaged our firm to represent them as their US counsel for their IPO onto the Nasdaq Stock Market and I was their lead attorney for their IPO process. We worked closely with the company on almost all aspects of their US IPO, including their prospectus, application to Nasdaq and responses to questions given by the regulators, as well as transaction documents with the underwriter and its counsel.
We were also crucial in helping design a deal structure that would work both for the company and, more importantly, the regulators. This was the case especially towards the end of the process, because the market condition had changed significantly comparing to when Lichen first launched its IPO effort. We, as the company’s counsel, had to pull every trick in our sleeves to come up with legal solutions to make sure that they were able to get through the regulators with as little modification in the documents as possible, but at the same time assuring them that the company was worthy of their consideration for approval.
Lichen’s IPO was significant in a sense that it was the first small-cap IPO by a China-based issuer to be listed on the Nasdaq in 2023.
We also understood that in today’s market, things could change in a matter of hours and the longer the process drags, the bigger the risk is to our client in finishing their IPO. Knowing timing was of the essence, our team worked tirelessly with all parties involved, including our client Lichen, regulators and the underwriter on a practically 24/7 basis, with multiple versions being prepared at the same time to make sure that we had the necessary legal documents ready for everyone when they were needed.
We were very glad and relieved when we saw Lichen finally close its IPO and begin trading on the Nasdaq. At the same time, I am extremely proud and grateful for our team members that were involved in this listing. It would not have been possible without their dedication and commitment.
What unique skills and expertise did your team bring to the operation?
First, we consider ourselves business lawyers. What that means is that we always dissect the laws and regulations coming from the perspective of a business owner. I come from a business background before becoming a lawyer so I understand that ultimately the lawyers are here to serve the needs of the business owner, while making sure that the business decisions are legally compliant. We try not to create more legal issues for our clients, but rather provide them with a practical solution to solve their day-to-day problems.
Second, we consider ourselves experts in dealing with companies based in Asia. Most of our staff, including myself, are multi-lingual and actually spent a significant amount of our lives in Asia. At the same time, we are well-versed in bridging the differences the Eastern and Western values. This is particularly important when we work with the regulators. Most of my clients are based in Asia and some of them may have never been to the US. Because of that, we are often not only serving as their lawyers, but also serving as their only voice when their profile is being presented in front of the regulators and investor community. Our strength is to bridge any gap or difference in views the best we can because we truly understand where both sides come from.
Lastly, we take pride in our ability in anticipating any potential issue before they become an issue. Like everything else, success is all about the preparation you put in. While we are good at tackling the issues in front of us, we try to plan many steps in advance before making one move. Because of our experience in dealing with many issuers from the past, we have built in certain standard protocol to streamline the process. In addition, we are constantly thinking the unpredictable to make sure that there is no surprise in the process. As doctors always say, the best medical care is preventive care. We have the same mindset.
We consider ourselves business lawyers. What that means is that we always dissect the laws and regulations coming from the perspective of a business owner.
What are your primary concerns when advising on an offering?
The entire IPO process can be a rather lengthy journey, one filled with uncertainties. As an issuer’s counsel, we try to prepare for as many potential issues as possible, but it is almost impossible to cover all of them. In today’s world, market conditions could change overnight. As a result, regulatory response in reaction to that could suddenly change as well. In our eyes, this is the inherent risk that we will need to deal with when taking a company public because these changes could potentially prolong the process or sometimes even jeopardise the outcome. I always advise my clients that if we have a chance to close a deal, just do it as soon as practicable. The longer one waits, the bigger the risk of failure there is.
Besides the market risk, we also need to be mindful of the local regulations as we deal with many overseas clients. Even though we are US lawyers, I always try to first educate myself on the applicable regulations in the jurisdiction that our client is located in. I then either pass on the information to our staff or ask them to further research the local laws in details. Sometimes the biggest concern is what you do not know and you do not want to step onto that regulatory landmine. Because we are often dealing with two or more sets of laws at the same time, we have to learn to navigate and find an equilibrium where the client is compliant both in the US and locally.
Were any challenges encountered during the course of the IPO? If so, how did your team overcome them?
As I always say, nothing is ever easy. Nothing can be taken for granted these days, especially in today’s world, where everything must be accomplished in a collaborative manner. Everyone is a small piece of a bigger puzzle and yet everyone is interconnected. However, things often do not go the way you envision them to when you first start, for whatever reason. In our world, there is no such thing as an ‘easy deal’; every one of them has its own hairs. You just need to find a way to pull it out.
When Lichen began its IPO journey in 2021, the market was at its peak with tons of cash up for grabs. The market took a 180-degree turn in 2022 and because of that, the regulators also became more cautious about approving companies to list. The combination of market and policy changes were definitely some of the biggest challenges we faced along the way, as it forced us to constantly go back to the drawing board and come up with solutions that would work in that particular moment. Regardless of the changes, the company’s management showed their perseverance by having only the end goal, which is the final listing, in their eyesight. We, as their legal counsel, are very appreciative of their determination because we have seen others bail in similar situations.
When Lichen began its IPO journey in 2021, the market was at its peak with tons of cash up for grabs.
How did your work with Lichen China Limited fit the profile of your firm?
The bread-and-butter product of my practice area is to help Asia-based companies getting listed on a US stock exchange. Lichen China’s main operation is based in Fujian Province, China. Their management team has very little experience about the US capital market, and in fact speaks very little English, yet they have their own version of the American dream. We were called upon to represent them during their IPO process. Our team drafted their prospectus, prepared their Nasdaq application and assisted the company with their response to the comments provided by the regulators.
The representation of Lichen China is the epitome of what our firm is about. We are a New York law firm that serves clients with international vision and ambition.
How did Ortoli Rosenstadt work with other firms involved in the IPO to ensure a satisfactory outcome?
As the issuer’s counsel on an IPO, we would be considered the ‘quarterback’ of the entire listing process. We would need to coordinate and control the documents with all parties, including the company, underwriter and its counsel, auditor and others. We were fortunate that the underwriter, its counsel, and the auditors were all teams that we had previously worked with and therefore the familiarity made the process easier. We were also fortunate to have the trust that the company placed in us in dealing with the professional parties rather than micromanaging everything themselves.
Knowing the working style of each professional party in advance was helpful in terms of our preparation throughout the process. Just by knowing the expectation of what the other side wanted, we cut down the communication time needed to achieve the results that we and our client wanted. We would prepare documents knowing the nuances involving the other parties to ensure that the back-and-forth on the documents did not become an endless process. In my nine years of law practice, there has never been a true ‘friendly’ transaction. There would always be some sticking point that became an issue for some party. Lichen’s IPO was no different, but we respected the requests of other parties while representing our client’s interests zealously. We were pleased that the collaboration with other others led to a satisfactory outcome for everyone.
What impact do you expect the success of this stock market debut will have on Lichen China Limited and the wider financial services sector in China?
The IPO raise gave the company a fresh injection of cash to help them execute on their business plan. In China, it is very difficult to obtain financing from traditional means with the banks unless there are significant assets being collateralised and personal guarantees from those with vested interest. Lichen’s success story in accessing the US equity market, being a Chinese company, gave many similar companies the confidence that they could do the same.
As the issuer’s counsel on an IPO, we would be considered the ‘quarterback’ of the entire listing process.
In addition to the capital raise, the prestige of being a Nasdaq-listed company has helped Lichen increase its brand value in its own industry. Many business partners would feel much more comfortable in doing business with a publicly listed company than with an unknown private company.
Lastly, as a publicly traded company, companies like Lichen can now use their stock in lieu of cash to acquire other businesses to support or expand their existing business lines. Lichen’s Nasdaq listing really led the way for many Chinese issuers with respect to their own IPO effort in 2023. To date, it is estimated that almost two dozen China-based issuers have listed on a US exchange in 2023.
Are there any other comments that you would like to make about the work your firm undertook relating to the IPO?
Taking a company public is never a one-man effort. First and foremost, all of our staff are amazing lawyers, incredibly hardworking and knowledgeable about what they do. I have also received unlimited support from my partners within our firm to complete each transaction. When we take on an IPO client, we always carry with the mindset of ‘we go in as a team and we come out as a team’. We have really built a very collegial environment, which I am personally very proud of myself.
Do you expect Ortoli Rosenstadt to work on similar operations in 2023?
The short answer is yes and no. Our New York office will continue to service our global clients the way it always has been. However, we are also particularly excited for the opportunities being presented to us in 2023. In October 2022, we opened our Singapore office and sister firm under the brand of “Ortoli Rosenstadt Ye Ptd. Ltd.”.
We are a fully registered foreign law practice approved by the Ministry of Law in Singapore. This is our first flagship office outside of New York. Much of the firm’s resources have been put into the initial setup of the Singapore affiliate firm and we have started investing in top local talents and marketing efforts to build a local presence in the ASEAN region. While we are a New York law firm by blood, we want to take a more localised approach in meeting the needs of the clients in the region. Things have been put in motion with the goal to showcase the US capital market world to the companies in the region and educate those who are interested how the US capital market can benefit and accelerate the growth of this particular region.
Going into 2023, China still remains to be our largest market and we do not expect that to change in the near term. However, the launch of our Singapore office really expands our coverage within Asia into Southeast Asia, allowing our firm to cover companies in countries such as Singapore, Malaysia, Indonesia, Thailand and Vietnam. It could also reach as far as Australia given the closeness of the time difference, thus allowing our firm to service our overseas clients around the clock.
I think that this is a region that has been a bit overlooked in the past and I see with my own eyes that a lot of exciting things are happening there. Given that, our goal is to bring cutting-edge legal expertise from the US to their footsteps. Also, this is not just limited to the capital market practice. It would apply to other practices as well, such as real estate, corporate M&A and even litigation or arbitration matters. This was a strategic move for us with a long-term vision.
Jason Ye, Partner
366 Madison Ave, 3rd Flr, New York, NY 10017, USA
Tel: +1 212-588-0022
Jason Ye is a Partner at Ortoli Rosenstadt LLP and Co-Chair of the firm’s Asia practice. Jason’s practice is focused on cross-border corporate and capital market transactions and he has represented many domestic and international companies, investment banks and institutional investors on a broad range of transactions. Recognised as one of the most prolific attorneys in the field, Jason also regularly represents public companies, particularly those based in Asia, regarding their NYSE or Nasdaq initial listing and post-listing compliance.
Ortoli Rosenstadt LLP is a full-service New York law firm that represents US and international clients. Its multilingual team provides services in the areas of corporate law, securities, international transactions, litigation, employment law, franchising and international tax both domestically and across multiple jurisdictions.