Shandong-based producer of chemicals, GTS Chemical Holdings, listed on London Stock Exchange last year. (Photo provided to China Daily)
Domestic stock market turmoil may force more firms to seek overseas initial public offerings
Turmoil in China's domestic stock market may prompt more Chinese companies to consider listing overseas in mature markets like the United States and Europe, where share prices generally have less volatility, experts said.
Some Chinese firms looking to make an initial public offering, or IPO, may be scarred by the recent price falls on China's domestic exchanges, and instead look to Western stock markets where market dominance by institutional investors leads to less speculative trading.
"The rapid fluctuations in stock prices in China's A-share market are quite harmful for companies, because it makes the cost of secondary raising unpredictable," said Roy Su, chief finance officer of GTS Chemical Holdings, a Chinese company listed on the London Stock Exchange.
The company's IPO story may provide inspiration to many Chinese companies looking to overseas listings. The Shandong-based producer of specialty chemicals, lubricating oil and recarburizers has seen its share price experience strong growth on the LSE, rising from 56 US cents at the IPO in August 2014 to around 56 pence now.
"From the company's perspective, we would much prefer steadily growing share prices, which reflect the fundamentals of companies' growth," Su said.
"Such an environment would also encourage our investors to be long-term investors who believe in the long-term growth of the company as opposed to short-term investors wishing to benefit from rapid price fluctuations," he said.
Since its June 12 peak, the Chinese stock market has dropped by 30 percent－wiping off the equivalent of $2.34 trillion, which is 10 times the size of Greece's annual GDP.
This hit domestic and international investors' confidence, and some industry insiders now expect more companies to list overseas, following a trend that has increased in recent years.
The benefits of listing overseas include brand reputation, ease of comparison with industry peers, and a solid foundation for overseas expansion.
Already 53 Chinese firms are listed on the LSE, and 25 Chinese companies trade on Frankfurt's Deutsche Borse, of which 16 are on the Prime Standard of the exchange. This is known to have some of the world's most stringent corporate governance rules.
"All Chinese companies that are listed in the Prime Standard of Deutsche Borse have opted for the highest transparency standards in Europe. A lot of these Chinese companies have their peer groups in Germany and find well-informed analysts here.
"Chinese companies also value the European currency as well as the good reputation of being listed in Germany," according to a Deutsche Borse statement.
Derrick Woolf, a non-executive director of Jiasen, a Quanzhou furniture firm that listed on London's Alternative Investment Market in June last year, said he believes more Chinese companies will seek listings overseas, because international stock exchanges' stringent corporate governance regulations would boost their brand value.
And that will help the Chinese firms do business in their domestic markets, as well as help them strike partnership deals with overseas companies, Woolf said.
Jiasen, which raised 2 million pounds through its AIM IPO, has since entered discussions with Western companies over possible partnerships in China, Woof added.
The overseas listing allowed Jiasen to purchase a piece of land in China from the local government at discounted price, and use it to set up a new factory. This is because Jiasen's London listing has helped give credibility to the firm.
Another benefit of listing in a market like AIM is stability of valuation, because such a market is generally driven by institutional investors who hold their investment for the long term.
