London bourse bids to lure Chinese listings

A new wave of Chinese company listings are expected in London as the London Stock Exchange ramps up its efforts to attract Chinese firms, whilst a feasibility study to connect London and Shanghai's stock markets is underway.

In February the Chinese company Suzhou Weibao Investment Co Ltd announced that it will list on the main board of the London Stock Exchange in six month's time, and industry insiders are hoping this major listing will act as anchor for more Chinese listings.

"It's not often that a Chinese firm lists on the main board in London. I hope that Suzhou Weibao will become an exemplary Chinese company listing in London, helping to build London investors' trust in Chinese firms," said AKM Ismail, CEO of Avalon Enterprises Ltd, a Singapore-based consultancy that also assists client firms with London listings.

Currently 44 Chinese firms are listed in London, with only nine on the main board. The rest are listings on the junior market, the Alternative Investment Market.

Suzhou Weibao, which makes healthcare products using advanced biotechnology developed from its own patented technology, also announced plans to add production as well as research and development units in the UK, so having a London listing would help boost its reputation.

"The London listing will help us build a reputation as an international brand, and goes hand in hand with our decision to leverage the UK's biotechnology R&D and production strength," founder and Chairman Shao Chen told China Daily in February.

Ismail says Weibao's international operation will give it a better chance for winning international investors' trust. An added benefit is that companies like Weibao can use their London listed shares as a currency to make acquisitions for target companies in Europe, should they wish.

"This brings benefits for the Chinese firms who do not need to make the acquisition with cash, and is suitable for their European targets, who see the shares on the London Stock Exchange as reliable and easily tradable," he says.

Ismail says the interest for Chinese firms' listing in London has grown since Chinese Premier Li Keqiang's visit in 2014, which showed Chinese firms London's strength in raising capital. The London Stock Exchange rolled out its first major road shows in China to attract Chinese listings, with events in Beijing and Hong Kong.

More recently, in November 2015 the London Stock Exchange held a conference to attract Chinese listings, and the conference was attended by high profile speakers from China and abroad including the People's Bank of China's chief economist Ma Jun and Agricultural Bank of China's executive vice president Li Zhenjiang.

Nikhil Rathi, CEO of London Stock Exchange, said that his team is committed to work with London's financial industry and regulators to "build a vibrant international market in London for Chinese equity and debt funding."

Meanwhile the London Stock Exchange has started a feasibility study to connect the London and Shanghai stock exchanges, with a report expected soon, although there is no definite date.

Importantly, such a connect could give London's investors valuable access to China's stock market, which currently is only open to qualified foreign institutional investors due to the country's capital controls. Such a connect may operate in a similar way to the Shanghai-Hong Kong stock connect, and follow on from the conversation started in October 2015 during Chinese President Xi Jinping's UK visit.

John McLean, non-executive chairman of two AIM-listed Chinese companies, said the London Stock Exchange's marketing efforts in China is encouraging to the industry. "With London being a major source of international funds, and China growing so quickly, it makes sense that the London Stock Exchange would like to grasp the opportunity," McLean says.

McLean's views represent that of many London financial industry participants who hope this array of initiatives and fresh developments will help change the perception of Chinese firms, hampered in past years by the questionable actions of some companies.

In 2007, the Chinese lottery operator Betex delisted from the AIM after Chinese authorities detained two senior staff members for illegal gambling. In 2008, the chief executive and majority shareholder of Chinese mobile phone handset maker ZTC Telecoms disappeared after using shares in the company as collateral for a loan.

Those Chinese firms with shares still traded on the London Stock Exchange are hopeful that sustainable performance over the years will win investors over.

"We just have to keep on generating positive revenue, and persuade investors that our firm will bring growth for their capital in the long term," Li Xianzhi, CEO of Aquatic Foods Group, which listed on AIM in 2015, raising 9.3 million.

Li says when the company first thought about preparing an IPO four years ago, it considered a China listing but found it to be unsuitable as the queue for new IPOs in London would result in about five years of wait.

Li's views are backed by David Facey, a partner of SP Angel Corporate Finance, which currently acts as nominated advisor to Aquatic Foods Group and GTS Chemical Holdings. GTS is a Chinese firm that listed on AIM in2014.

Nominated advisors act as intermediaries that regulate firms on behalf of the London Stock Exchange for AIM-listed companies, and are a prerequisite for companies seeking introduction to AIM.

Facey says his team has continued to receive enquiries for new listings in recent months from Chinese firms, but previous failures by Chinese firms on AIM have impacted investors' appetite.

"We believe that only time will change people's opinion, as the Chinese companies remaining on the market continue to perform. For example, Aquatic Foods Group and GTS Chemical Holdings continue to deliver their promises, including paying dividends in line with dividend policy, implementing good corporate governance and keeping the market fully informed of progress ."