On October 29, 2020, Ninebot, a leading supplier of electric scooters incorporated in the Cayman Islands, went public on China’s Science and Technology Innovation Board (the “STAR Board”). This makes the company the first foreign-incorporated company using a VIE structure to issue Chinese Depositary Receipts (“CDRs”) in China.

The opening price of Ninebot was CNY 33 on the first trading date, which nearly doubled its offering price at CNY 18.94. The company’s stock price surged to CNY 50.18 on October 30, 2020 and remains steady at the time of publication.

Formal Acceptance of the VIE Structure

The Nasdaq-style STAR Board was established with the aim of boosting investment in home-grown innovative companies. The China Securities Regulatory Commission (“CSRC”), hence, permits a wide range of high-tech companies, including those operating using the much questioned VIE structure, to issue shares or CDRs on the STAR Board, although subject to stringent disclosure requirements and the CSRC’s final veto.

On June 12, 2020, Ninebot became the first company to obtain approval from the listing review committee of the Shangai Stock Exchange to sell CDRs on the STAR Board. Nevertheless, prior to September 22, 2020, the date that Ninebot obtained the final greenlight from the CSRC to list on the STAR Board, the fate of Ninebot, and the official treatment of the VIE structure in general, have been an area of much uncertainty and speculation.

CSRC’s blessing of Ninebot’s listing is clear evidence that the VIE structure is no longer in a “grey area” under PRC law, where it was previously unclear whether such structure was permitted or prohibited. The source of this uncertainty stems from the inconsistent attitude of PRC regulatory authorities towards VIEs in the past. That being said, we believe that the CSRC’s clearance of Ninebot’s listing signals a formal recognition of the VIE structure, at least for use by companies operating in high-tech industries.

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