BEIJING - The
strength of China's emerging economy is leading to
feverish trading across the globe, as investors
hunt for opportunities to capitalize on the growth
of Chinese companies. A close look at China's
recent overseas initial public offerings (IPOs)
reveals that competition for a slice of its
economy is intensifying among the world's stock
exchanges.
It's a seller's market as the
world's exchanges compete as never before. London,
the United States, Hong Kong and Singapore are
popular exchanges on which Chinese companies can
go public. To compete, they have learned to offer
different solutions to meet the diverse needs of
companies at different stages of growth.
A
new and interesting element is the shift in
capital-raising for Chinese companies between
London and Hong Kong. The London
Stock Exchange (LSE), one of
the world's oldest bourses attracting large
international IPOs, has turned out to have more
competence in attracting small companies.
Meanwhile, Hong Kong has grown from an
insufficient liquidity market into a major global
capital market, which staged all the biggest
Chinese IPOs of 2005, but at the price of losing
small companies. The Hong Kong exchange made
considerable gains in 2005. Statistics by leading
accounting firm Ernst & Young show that out of
China's 114 IPO transactions that year, 64 deals,
or 56% of the total, were made in Hong Kong. In
total, Chinese companies on the mainland raised
21.3 billion yuan (US$2.67 billion) of capital,
accounting for 88% of the total capital raised on
exchanges.
All the top five IPOs of 2005
were from China, with state-owned commercial banks
leading the pack. The Bank of China (BOC), China
Construction Bank (CCB) and the Bank of
Communications (BoCom) have all gone public in
Hong Kong. They will be followed by the Industrial
and Commercial Bank of China (ICBC) this year.
Their success in Hong Kong challenges the
long-held assumption that companies above a
certain size need to list in the US or London in
order to raise significant capital. Increasingly,
issuers are becoming comfortable with the idea
that big deals can be done exclusively in Hong
Kong without the need to list elsewhere. "This
signals a new era, not just for China but for
global capital markets in general," said K C Yau,
a partner with assurance and advisory services at
Ernst & Young. "It indicates a new liquidity
in the markets and a shift in the IPO landscape."
The LSE, historically a top choice for
companies to raise large amounts of capital when
listing, seems to have no advantage over Hong Kong
in luring large Chinese IPOs. However, LSE's
second market, the Alternative Investment Market
(AIM), was extremely successful in attracting
smaller Chinese companies last year.
"Currently, 28 Chinese companies
[including Hong Kong companies] are listed on
AIM," LSE chief executive Clara Furse told China
Daily. "The first half of 2006 saw 12 Chinese
companies list themselves there."
By
comparison, only nine small Chinese companies are
listed on Hong Kong's second market, the Growth
Enterprise Market (GEM) in 2005. The number has
fallen since 2003 when there were 27 Chinese
listings on GEM.
And Singapore
... As Hong Kong listings seem to be a
natural stepping stone for many Chinese companies
making their way onto the world stage, another
good step in becoming internationalized is
Singapore.
Just as with Hong Kong, the
Singapore Exchange (SGX) is prospering on the back
of the Chinese boom, thanks to cultural and
language similarities. "Singapore is the 'natural
gateway' via which Chinese companies establish
business relations with Southeast Asia and other
regions," Singapore's Senior Minister Goh Chok
Tong said.
The exchange is particularly
distinctive for attracting manufacturing
companies. Statistics from the exchange show that
40.1% of listed companies on SGX are
manufacturers.
Until May, 103 Chinese
companies (including firms from Hong Kong and
Taiwan) were listed on the bourse, accounting for
14% of the total number of companies listed on the
SGX. And 68% of the Chinese companies were
manufacturers, said Lawrence Wong, senior vice
president and head of listings with SGX.
Those companies choosing SGX have a clear
motive to get on the international market,
especially in Southeast Asia. Asianpharm Group Ltd
is a medicine manufacturer with factories in
Shandong province. The company went public on the
SGX on May 5, 2004, believing Singapore was the
ideal location for a big medicine manufacturer.
"We want to break into the Southeast Asia
market, getting into Vietnam, Indonesia and
Thailand, by listing on the SGX," company chairman
Liu Dianjun said.
Meanwhile, in New
York ... Among global bourses, the US was
the only one that did not see rising numbers of
Chinese IPOs in 2005. For North America, which
continues to account for almost a fourth of global
IPO activity, 2005 was a year of stability. Both
deals (285 compared with 286) and capital raised
($39.4 billion compared with $39.7 billion)
remained steady compared with 2004, according to a
survey conducted by Ernst & Young.
Views are mixed as to whether the
implementation of the Sarbanes-Oxley Act (also
known as the Public Company Accounting Reform and
Investor Protection Act of 2002) and the
associated additional costs and compliance
requirements of going public in the United States
has affected IPO activity.
"The
Sarbanes-Oxley legislation, which followed several
high-profile corporate scandals, caused a major
shift in the landscape, with repercussions all
around the world," Yau said. "As with all complex
new legislation, time and effort is needed by both
companies and advisers to fully digest and
interpret its requirements. This may have
contributed to a stagnant US IPO market."
But the US market continues to welcome
earlier-stage growth opportunities, which is why
those types of companies still found the US market
attractive.
Among the 10 Chinese companies
that went public in the US last year, nine were
listed on the Nasdaq. A famous example is
Baidu.com, a Beijing-based Chinese search engine
which listed on the Nasdaq last year.
"Hong Kong is a good market, but more so
for non-technology issuers," Baidu.com chief
finance officer Shawn Wang said. "There is no
market that understands our business better than
the United States. For a technology offering, the
Nasdaq is the place to be."
As global
opportunities for financing ventures have
increased significantly, so has the complexity of
decisions facing companies planning an IPO. The
choice of which exchange to list on is key for
companies, and not all markets are the same.
Exchanges vary in listing requirements,
maintenance standards, rules and regulations,
reporting and settlement. Companies need to choose
stock markets that match their goals in going
public.
