Chinese companies favour Shanghai IPOs, survey finds

For a long time, an overseas listing has been an aspiration of Chinese companies. However, foreign exchanges are losing their appeal due to lower liquidity and more private companies in China are likely to prefer a share sale in the domestic market in coming years, a recent survey has found. This will increase the proportion of Chinese initial public offerings in the domestic market.

About 76% of private companies surveyed indicated an interest in a domestic listing versus an overseas one, which is a higher portion than the 63% of total Chinese IPOs that were launched on a domestic exchange in the past five years, global research and analytics firm Evalueserve found.

The firm interviewed 150 companies on the Chinese mainland that have the intention of raising capital in the public markets over the next few years, as well as publicly listed Chinese companies that have already raised capital via share offerings, to find out their IPO preferences and the reasons behind their decisions.
 
“There are three main forces driving Chinese companies to select domestic listings -- the desire for domestic brand exposure, the maturing of domestic markets and cost benefits,” said Kristin Graham, an investment research analyst at Evalueserve China.
 
The maturing of China’s capital markets was exemplified by the launch of the Growth Enterprise Market in Shenzhen in late 2009, a board designed for start-up companies, which intends to become China's Nasdaq. Beijing’s efforts to transform Shanghai into the world’s financial centre by 2020 also facilitates the progress, the firm said.
 
Among those planning a local listing within the next five years, 62% are leaning towards the Shanghai Stock Exchange, rather than the Shenzhen market. That may make the primary market in Shanghai busier next year, especially if global capital markets remain weak.
However, “the CSRC (China Securities Regulatory Commission) has the ability to interject in the market to maintain stability and plays a role in the speed at which a company goes public. IPO activity is difficult to predict,” said Shanghai-based Graham.