The ASX has told tiny biotech Invion to explain whether a deal announced last week is in fact a backdoor listing by stealth for a Chinese company.

On Friday Invion (ASX:IVX), a drug development company targeting inflammatory diseases, went into a trading halt after the ASX asked it to confirm that it is complying with rules designed to regulate backdoor listings.

The two rules specified, Chapter 11.1.2 and 1.3, give the ASX the option to require shareholder approval for significant changes in a company, and for those changes to meet the bar set for Initial Public Offerings.

Last week Invion, a lightly traded stock that’s only worth $3.6 million, said it had signed a deal with Chinese investor Cho Group for the New Zealand and Australia commercialisation and distribution rights for a “new generation photo-dynamic therapy” to treat cancers.

Guangzhou-based Cho Group will fund research into prostate cancer treatments, in return for $5.5 million of shares and two board seats.

The Chinese company will also underwrite a $2.5 million public capital raising.

“The proposed entitlement offer to raise up to approximately $2.5 million provides Invion shareholders the opportunity to participate in the future of the company on the same basis as CG, with certainty of funding via an underwriting agreement,” interim chairman Dr Greg Collier said.

This isn’t a new relationship.

In April Cho Group bought 218.9 million new shares in Invion, for $656,682. Cho Group chairman Michael Honsue Cho is listed as their biggest shareholder with about 15 per cent of company.

The ASX is getting particularly hot under the collar over Chinese companies listing in Australia, which have a reputation for not following the rules.

It took nine months for wine merchant DaWine to get onto the bourse earlier this year, because the ASX was scrutinising its business model of exporting wine to China.