The London Stock Exchange is actively lobbying Greater China firms from the new energy and TMT sectors for IPOs but concerns remain about such listings.
Seven Chinese companies have so far listed on the main board of the LSE and 52 from the country have listed on AIM, the alternative investment market established in 1995 as a vehicle for small, high-growth companies.
London has succeeded in luring such IPOs due to its strength as a major global financial center and as the gateway to the other European capital markets.
More companies in Greater China will list in London in the next few years, according to deal advisors and some executives, as the LSE steps up its lobbying effort to win business from China.
To convince more Chinese issuers to tap the UK’s primary equity market, the LSE unveiled a strategic plan at its Greater China Forum, held in association with FinanceAsia and its sister title AsianInvestor in Hong Kong on Monday.
The LSE is targeting more issuers from sectors such as alternative and new energy, as well as TMT, according to a person close to the LSE.
Traditionally, companies from sectors such as oil and gas, commodities and pharmaceuticals are more welcomed in London because London has mature institutional investors who have overseen the sectors and easily understood the companies’ businesses.
“For some oil and gas companies, the UK market may give a higher valuation for shares. The research and investment communities are mature for such companies,” said Randeep Grewal, chairman and CEO of Green Dragon Gas, a London-listed Chinese investment company that engages in the exploration, development, and production of coal bed methane.
To tailor to the specific needs of the high-technology sector and catch opportunities rooted in an industrial boom globally, especially in Greater China, the LSE has set up techMARK, a bourse designed to compete with the Nasdaq.
The techMARK board has lower requirements than the main board in terms of revenue and profit, total share capital, the number of shareholders and the lock-up period by major shareholders.
TechMARK-listed companies also have a longer time to prepare their annual/semi-annual reports.
The LSE is also speeding up the pace at which it introduces more Chinese companies for listings. It aims to bring in five to ten issuers to London every year, according to the person close to the LSE.
The exchange is also lobbying Chinese regulators to allow domestic-listed companies to issue GDRs (global depositary receipts) in London to help them expand overseas fundraising channels. The companies can raise funds from offshore markets through GDRs without overseas listings.
However, investors still hold conservative opinions towards promoting Chinese companies’ primary offerings in London.
The major concerns are the level of due diligence required by the LSE and investor understanding of Chinese businesses, based on a site poll on more than 100 conference attendances.
The due diligence required for UK listings is very detailed and much more disciplined, according to Voon Keat Lai, a managing director with a London-based law firm Stephenson Harwood.
Also, UK investors have become smarter and don’t just depend on IPO’s due diligence from deal advisors; they will by themselves engage with the issuers in to understand their businesses, added Christian Hogg, executive director and CEO with Hutchison China MediTech, which listed in the AIM in 2006.
Cost is another issue because either a dual listing or a transition from other markets to London will add extra cost burden for issuers. Costs for new listings in London may not be more than in Hong Kong or the US, but the cost for maintaining listing status are still high.
Some Chinese investors highlighted how cultural differences and ease of communication is important for overseas listings. “To list in London, companies should be very international and have excellent communication skills with local investors,” said an ETF manager, who attended the conference but asked to be anonymous due to company compliance.
