Four Chinese companies recently debuted on SIX Swiss Exchange (SIX), Switzerland’s main stock exchange, collectively raising $1.5 billion. And more are in the works.
But while a slew of law firms are cashing in on China’s thirst for cash, only time will tell if the broader European equity market can truly be seen as a sustainable funding channel for Chinese companies.
In July, SIX officially launched the Swiss RDA portion of the China-Switzerland Stock Connect, providing a new offshore source of trading liquidity for stocks listed on the Shanghai and Shenzhen stock exchanges.
So far, Baker McKenzie, Linklaters, Clifford Chance and King & Wood Mallesons have already benefited from the first wave of companies listing on SIX, advising on issues from Shanghai-listed Keda Industrial and Ningbo Shanshan, and of GEM and GEM, listed in Shenzhen. Gotion High-tech. Notably, Baker McKenzie and Linklaters were involved in all four listings, advising both issuers and underwriters.
According to Linklaters Shanghai partner John Xu, his firm also provided legal support to SIX on the new rules and advised the exchange on the RDA filing and settlement arrangement as well as the coordination mechanism for the disclosure of information from listed companies under the Shanghai-London Stock Connect. program.
Adding to the list of international advisers are the Swiss law firm Niederer Kraft Frey and a whole series of Chinese firms, including Llinks Law Offices, Jingtian & Gongcheng, Haiwen & Partners, Kingson Law Firm, Grandway Law Offices, Tian Yuan Law Firm and Kangda Law. Solidify.
Of the four issuers, new energy vehicle battery maker Gotion garnered the most interest, raising $685 million. GEM, Ningbo Shanshan and Keda Industrial Group raised $346 million, $319 million and $173 million respectively.
Although the listing requirements and process are less strict and more transparent on SIX than on the Hong Kong Stock Exchange (HKEX), there are still key legal issues to be resolved, according to international lawyers in China.
A key point in dispute is whether proceeds from SIX’s fundraising can be used for overseas investment or construction projects, and to what extent they can be kept offshore.
“At present, the answer to the question is still uncertain. Under current exchange management practices, once GDR issuance is complete, all products must be returned to China. If customers (issuers) need to use the product overseas, they need to follow capital outflow procedures separately,” said Fan Lingli, a Beijing-based business partner at King & Wood Mallesons.
Another area of concern is the coordination of disclosure in the A-share market and the Swiss market, as GDR issuers are Chinese companies listed on mainland China stock exchanges, and many are unfamiliar with Swiss laws and practices. of the market, according to Baker McKenzie, partner of Beijing, Wang Pendre. “They need to learn how to comply with Swiss rules and think about the implications of using Swiss law as the law governing transaction documents,” Wang explained.
Despite the learning curve for Chinese issuers, the new source of funding comes at a critical moment of volatility.
The US market has long been recognized as a “home run” for any Chinese company that aspires to list overseas. But the U.S. certificate of deposit (ADR) market for Chinese issuers has been largely closed this year due to delisting threats from unresolved audit agreements between China and the United States Securities and Exchange Commission. China’s massive crackdown on data-intensive Chinese companies and their overseas listings, which began last year, has also spooked big tech companies looking to launch initial public offerings (IPOs).
Hong Kong’s capital market is also suffering from a lull, partly due to the city’s zero-Covid policy, which has had a negative impact on investor confidence. Hong Kong’s IPO in the second quarter of this year fell 90% from a year earlier.
While acknowledging that new funding opportunities in Switzerland can be positive for market sentiment, some lawyers are skeptical. The longevity of interest in SIX’s listings is curious, according to a senior partner at a Beijing-based law firm.
His skepticism is not unfounded.
China has seen listings in the GDR before, but European listings have never been particularly successful in sustaining interest from Chinese issuers. In 2018, Chinese home appliance maker and distributor Haier Smart Home Co. launched GDRs in Frankfurt, sealing the first D-share IPO on the China Europe International Exchange, a joint venture in Germany established in 2015. by Deutsche Borse AG, the China Financial Futures Exchange and Shanghai Stock Exchange.
After Haier, however, only four other Chinese companies – Huatai Securities, China Pacific Insurance, China Yangtze Power and SDIC Power Holdings – have gone public in London through the Shanghai-London Stock Connect program, which was launched in 2019.
Additionally, for Switzerland, SIX listings represent only around 10% of all European listings, although it is home to some of the largest publicly listed European companies by market capitalization, such as Nestlé. Last year, SIX only had five IPOs, all from domestic companies.
That compares to more than $12 billion raised by Chinese companies through IPOs in the United States in 2021 alone.
But the decision of Chinese companies to list on SIX is not so much a matter of comparing the US and Swiss markets, notes Linklaters Xu. Four of the new Chinese companies listed on SIX never considered New York as a possible listing location, although some considered Hong Kong before turning to the Swiss exchange, he said.
According to Baker & McKenzie’s Wang, Chinese issuers chose SIX over Hong Kong because not only was the stock’s valuation higher, but SIX’s post-listing maintenance fee was also lower than that of the Hong Kong Stock Exchange. .
“The Swiss RDA’s listing process is faster and more efficient than (a) Hong Kong IPO,” Wang said. “Additionally, SIX is a good channel to promote the profile and investment value of these PRC companies in Europe, especially for those with an international footprint or needing funding to fuel their expansion plan. world.”
The economic, legal and social stability of Switzerland and the Swiss financial center are also key considerations, Wang added.
More than ten other Chinese companies are reportedly close to listing on SIX, including Fangda Carbon New Material, Lepu Medical Tech, Sany Heavy Industry, Will Semiconductor and Eastroc Beverage Group, although some are also eyeing London and Frankfurt as potential venues.
And with the threat of more than 150 Chinese companies being delisted from New York, SIX may be considering welcoming more Chinese issuers in the coming months, although King & Wood’s Fan says that will be a difficult prospect.
“If a company delisted from the United States wishes to be listed on SIX, at least for now, it must first become an A-share listed company listed on the Shanghai Stock Exchange or the Shenzhen Stock Exchange,” Fan said. .
According to Xu, in addition to RDAs, Swiss and Chinese stock exchanges are also exploring Chinese certificate of deposit (CDR) listings, with the aim of allowing companies listed in Switzerland to have secondary listings in China through CDRs.
“SIX and Shanghai (and) Shenzhen stock exchanges take a long-term view to allow relevant listed companies to have dual listings in other stock exchanges,” Xu said. “From the perspective of the Chinese regulator, they are more than happy to help Chinese companies, listed or unlisted, to have multiple financing options in the offshore markets.”
https://www.law.com/international-edition/2022/07/15/150-delisted-chinese-companies-are-lawyers-in-hong-kong-licking-their-lips/
https://www.law.com/international-edition/2022/05/19/will-chinas-compromise-on-foreign-audits-be-enough-to-stop-stock-market-evictions/
https://www.law.com/international-edition/2022/04/07/who-leads-on-hong-kong-listings-maybe-not-the-firms-you-think/
Four Chinese companies recently debuted on SIX Swiss Exchange (SIX), Switzerland’s main stock exchange, collectively raising $1.5 billion. And more are in the works.
But while a slew of law firms are cashing in on China’s thirst for cash, only time will tell if the broader European equity market can truly be seen as a sustainable funding channel for Chinese companies.
In July, SIX officially launched the Swiss RDA portion of the China-Switzerland Stock Connect, providing a new offshore source of trading liquidity for stocks listed on the Shanghai and Shenzhen stock exchanges.
So far, Baker McKenzie, Linklaters, Clifford Chance and King & Wood Mallesons have already benefited from the first wave of companies listing on SIX, advising on issues from Shanghai-listed Keda Industrial and Ningbo Shanshan, and of GEM and GEM, listed in Shenzhen. Gotion High-tech. Notably, Baker McKenzie and Linklaters were involved in all four listings, advising both issuers and underwriters.
According to Linklaters Shanghai partner John Xu, his firm also provided legal support to SIX on the new rules and advised the exchange on the RDA filing and settlement arrangement as well as the coordination mechanism for the disclosure of information from listed companies under the Shanghai-London Stock Connect. program.
Adding to the list of international advisers are the Swiss law firm Niederer Kraft Frey and a whole series of Chinese firms, including Llinks Law Offices, Jingtian & Gongcheng, Haiwen & Partners, Kingson Law Firm, Grandway Law Offices, Tian Yuan Law Firm and Kangda Law. Solidify.
Of the four issuers, new energy vehicle battery maker Gotion garnered the most interest, raising $685 million. GEM, Ningbo Shanshan and Keda Industrial Group raised $346 million, $319 million and $173 million respectively.
Although the listing requirements and process are less strict and more transparent on SIX than on the Hong Kong Stock Exchange (HKEX), there are still key legal issues to be resolved, according to international lawyers in China.
A key point in dispute is whether proceeds from SIX’s fundraising can be used for overseas investment or construction projects, and to what extent they can be kept offshore.
“At present, the answer to the question is still uncertain. Under current exchange management practices, once GDR issuance is complete, all products must be returned to China. If customers (issuers) need to use the product overseas, they need to follow capital outflow procedures separately,” said Fan Lingli, a Beijing-based business partner at King & Wood Mallesons.
Another area of concern is the coordination of disclosure in the A-share market and the Swiss market, as GDR issuers are Chinese companies listed on mainland China stock exchanges, and many are unfamiliar with Swiss laws and practices. of the market, according to Baker McKenzie, partner of Beijing, Wang Pendre. “They need to learn how to comply with Swiss rules and think about the implications of using Swiss law as the law governing transaction documents,” Wang explained.
Despite the learning curve for Chinese issuers, the new source of funding comes at a critical moment of volatility.
The US market has long been recognized as a “home run” for any Chinese company that aspires to list overseas. But the U.S. certificate of deposit (ADR) market for Chinese issuers has been largely closed this year due to delisting threats from unresolved audit agreements between China and the United States Securities and Exchange Commission. China’s massive crackdown on data-intensive Chinese companies and their overseas listings, which began last year, has also spooked big tech companies looking to launch initial public offerings (IPOs).
Hong Kong’s capital market is also suffering from a lull, partly due to the city’s zero-Covid policy, which has had a negative impact on investor confidence. Hong Kong’s IPO in the second quarter of this year fell 90% from a year earlier.
While acknowledging that new funding opportunities in Switzerland can be positive for market sentiment, some lawyers are skeptical. The longevity of interest in SIX’s listings is curious, according to a senior partner at a Beijing-based law firm.
His skepticism is not unfounded.
China has seen listings in the GDR before, but European listings have never been particularly successful in sustaining interest from Chinese issuers. In 2018, Chinese home appliance maker and distributor Haier Smart Home Co. launched GDRs in Frankfurt, sealing the first D-share IPO on the China Europe International Exchange, a joint venture in Germany established in 2015. by Deutsche Borse AG, the China Financial Futures Exchange and Shanghai Stock Exchange.
After Haier, however, only four other Chinese companies – Huatai Securities, China Pacific Insurance, China Yangtze Power and SDIC Power Holdings – have gone public in London through the Shanghai-London Stock Connect program, which was launched in 2019.
Additionally, for Switzerland, SIX listings represent only around 10% of all European listings, although it is home to some of the largest publicly listed European companies by market capitalization, such as Nestlé. Last year, SIX only had five IPOs, all from domestic companies.
That compares to more than $12 billion raised by Chinese companies through IPOs in the United States in 2021 alone.
But the decision of Chinese companies to list on SIX is not so much a matter of comparing the US and Swiss markets, notes Linklaters Xu. Four of the new Chinese companies listed on SIX never considered New York as a possible listing location, although some considered Hong Kong before turning to the Swiss exchange, he said.
According to Baker & McKenzie’s Wang, Chinese issuers chose SIX over Hong Kong because not only was the stock’s valuation higher, but SIX’s post-listing maintenance fee was also lower than that of the Hong Kong Stock Exchange. .
“The Swiss RDA’s listing process is faster and more efficient than (a) Hong Kong IPO,” Wang said. “Additionally, SIX is a good channel to promote the profile and investment value of these PRC companies in Europe, especially for those with an international footprint or needing funding to fuel their expansion plan. world.”
The economic, legal and social stability of Switzerland and the Swiss financial center are also key considerations, Wang added.
More than ten other Chinese companies are reportedly close to listing on SIX, including Fangda Carbon New Material, Lepu Medical Tech, Sany Heavy Industry, Will Semiconductor and Eastroc Beverage Group, although some are also eyeing London and Frankfurt as potential venues.
And with the threat of more than 150 Chinese companies being delisted from New York, SIX may be considering welcoming more Chinese issuers in the coming months, although King & Wood’s Fan says that will be a difficult prospect.
“If a company delisted from the United States wishes to be listed on SIX, at least for now, it must first become an A-share listed company listed on the Shanghai Stock Exchange or the Shenzhen Stock Exchange,” Fan said. .
According to Xu, in addition to RDAs, Swiss and Chinese stock exchanges are also exploring Chinese certificate of deposit (CDR) listings, with the aim of allowing companies listed in Switzerland to have secondary listings in China through CDRs.
“SIX and Shanghai (and) Shenzhen stock exchanges take a long-term view to allow relevant listed companies to have dual listings in other stock exchanges,” Xu said. “From the perspective of the Chinese regulator, they are more than happy to help Chinese companies, listed or unlisted, to have multiple financing options in the offshore markets.”
https://www.law.com/international-edition/2022/07/15/150-delisted-chinese-companies-are-lawyers-in-hong-kong-licking-their-lips/
https://www.law.com/international-edition/2022/05/19/will-chinas-compromise-on-foreign-audits-be-enough-to-stop-stock-market-evictions/
https://www.law.com/international-edition/2022/04/07/who-leads-on-hong-kong-listings-maybe-not-the-firms-you-think/
