This is what the discussion, organised by FinanceAsia and JPMorgan, uncovered.
PARTICIPANTS
Sam Qian CFO, Buytime Media Group
Cao Qingyang, Head of investor relations department, China Life
Rene Vanguestaine, Chairman and CEO, Christensen
Cheng Li-Lan, CFO, E-House (China) Holdings
Fang Fang, China managing director and CEO, investment banking, JPMorgan
Claudine Gallagher, Global head of depositary receipts group, JPMorgan
Kenneth Tse, Asia-Pacific head of depositary receipts group, JPMorgan
Chen Leiming, Partner, Simpson Thacher & Bartlett LLP
Zhao Shuang, Lawyer, Simpson Thacher & Barlett LLP
Gordon Cheng, Executive vice-president & corporate board secretary, Vimicro Corp
Bryan Li, CFO, Yingli Green Energy Holdings
Why did your company go public, and why did you choose to list in the US?
Bryan Li: There are five points that I want to make in answering this question. The first point is that the transformation of a firm from a private company to a public company can increase the profile of the company internationally. And if the company is a big exporter, that can definitely be helpful. The second point relates to finance and sources of funds. Before the company completes its IPO, the company will have limited sources of finance. But once it becomes a public company, there will be a lot of sources for funds, both in the equity and the debt markets. The sources of funds will be
diversified.
The third point relates to human capital. When a company is private, it has a limited ability to attract talent to join the company. Once it is a public company, it is easier to attract talent and grow the firm. The fourth point relates to corporate governance. A lot of Chinese private sector companies are traditionally family businesses, and the management style will reflect this. If it converts into a public company there will be an external force that leads to changes in the management style and improve the corporate governance. The last point relates to exit strategies. Early investors û such as venture capitalists û will have agreed that an IPO needs to happen so they can realise
their return.
Cheng Li-Lan: E-House is a service company that provides real estate services for developers. We didnÆt really need an IPO. We are not a capital-intensive business. In fact, my CEO kept telling me that our life would be a lot easier if we didnÆt list and just kept profitably doing our business on a modest scale. But if you want to be and remain the number one, as we are, then you need to expand geographically, expand your service scope, and invest in technology and industry expertise. That expansion needs capital. Plus, an IPO û as Bryan pointed out û takes the company to a higher level in terms of
management and corporate governance.
The real estate market in China is very fragmented. The largest developer has about 1% market share. And we, as the largest service provider, have about 1% of the market. So it is a matter of whether you are satisfied with having a modest scale business, or whether you have the aspiration to become the leading platform.
The importance of a US listing is two-fold. We were the first Chinese real estate company to list in the US. In the Hong Kong stock market there are already many Chinese real estate firms. So being the first to list in the US gave us a lot of brand recognition back home in China. It has helped us to market our brand in the Chinese real estate industry. The second point is that US investors are more receptive to growth stories and asset-light service business models. If we had gone to Hong Kong, it is very likely we would have been compared to developers, and the analysis of the growth potential of this company would not have been understood so well.
Gordon Cheng: Vimicro is the largest fabless chip design company for multimedia in China. We design chips for PCs, notebooks, cameras, and mobile phones. So as a fabless semiconductor company, going to Nasdaq added a lot of brand value, and helped us gain recognition. I remember a couple of years before we went public, we went to see Sony and they asked a lot of questions. They are now our customer, but back then they didnÆt know us. Going to Nasdaq really enhanced our brand and made us better known, and also gave us access to new capital.
Secondly, it is our goal to bring great corporate governance to Vimicro and not
just pay lip service to it, like some companies do. So we invited a couple of
very important people to join our advisory board. The first is Joseph Grundfest, the ex-SEC commissioner, who is the Stanford law professor for corporate governance. We have frequent conversations with him about corporate governance. The second person is Donald Lucas, the ex-chairman of Oracle. He is currently our audit committee chairman û a role he also held at Oracle. Our goal is to bring the highest calibre of corporate governance to a Chinese company. We still have some way to go, but the direction is very clear. Listing in the US and being subject to Sarbanes-Oxley is a big part of this.
Thirdly, it is very important to incentivise engineers at tech firms. One way to do so is through stock options. We are trying to emulate the US Silicon Valley structure and bring it to China. So that was another reason for listing on Nasdaq.
Cao Qingyang: The reasons why China Life went public in the US in 2003 are as follows. Firstly, US institutional investors are very mature. Secondly, US investors are likely to offer objective valuation. Thirdly, the US capital market has very high requirements for companies that want to list, and this led China Life to improve its corporate governance and internal controls. Thanks to this our valuation has improved in recent years.
Sam Qian: I have been through a couple of IPOs. The answers so far address common reasons why companies go public in the US. In China, status and perception are very important, and I think people also want to list in the US for status reasons.
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