Stock exchanges in Europe gain as US audit issues shift focus from Chinese firms

A worker takes shelter from the rain under a Union Flag umbrella as he walks past the London Stock Exchange in London, Britain. [Photo/Agencies]

For Chinese companies seeking overseas funding, Europe has emerged as the preferred choice ahead of the United States this year and, for the first time, generated more funds, the global data provider said on Thursday. Dealogic financials.

Five Chinese companies have raised more than $2.1 billion from the Zurich and London stock exchanges by issuing global certificates of deposit (GDRs) so far this year.

During the same period, other Chinese companies raised less than $400 million on Wall Street, according to Dealogic.

Dong Dengxin, director of the Institute of Finance and Securities at Wuhan University of Science and Technology, said it is quite plausible that Chinese companies will change direction at the moment, as the market American capital is increasingly politically oriented.

In this sense, the Stock Connect program linking mainland China stock exchanges with major European stock exchanges has provided a better funding channel for Chinese companies.

International investors in the European market are offered more investment objectives. Economic and trade ties between China and Europe will also be strengthened, Dong said.

The Stock Connect program between the Shanghai Stock Exchange and the London Stock Exchange started in June 2019, through which A-share companies can issue GDRs in London. The program was expanded in February this year to include exchanges in Zurich, Frankfurt and Shenzhen.

Public domain data showed that at least 13 A-share companies have announced plans to issue GDRs on major European exchanges so far this year.

Zhao Haizhou, head of A-share offering in the Eastern region for the capital markets services group at Deloitte China, said the relatively low threshold for issuing GDRs – 20 billion yuan ($2.9 billion) of market capitalization would suffice – along with the easier application process have made GDRs a good choice for Chinese companies looking to expand their market or merge and acquire overseas.

Given the higher liquidity of the Zurich stock exchange, more A-share companies are expected to enter GDRs here in the near future. The exchange also provides an alternative for Chinese companies, as the audit dispute between China and the United States is still unresolved, Zhao said.

The China Securities Regulatory Commission, the Ministry of Finance and the US Public Company Accounting Oversight Board signed an audit oversight cooperation agreement in late August, an important step in resolving the audit dispute that haunts companies. Chinese companies listed in the United States for three years.

Although detailed measures have not been released, the chances of the more than 200 Chinese companies listed in the United States being delisted are now much lower, said Alvin Tse, head of offers for the Eastern region of Hong Kong for the capital market services group at Deloitte China.

While Chinese companies’ interest in listing in the United States began to pick up in July, overall IPOs and fundraising amounts have contracted significantly this year, according to Deloitte.

The professional services provider estimated that 13 Chinese companies are likely to debut on the U.S. stock market by the end of the third quarter of this year, down 68 percent year-on-year. Their total funding is expected to decline 97% year-over-year to $450 million.

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