Three Chinese companies are preparing IPOs in Switzerland, in a sign that the country's issuers are looking for alternative offshore listing venues beyond the US and Hong Kong.
Heavy machinery manufacturer Sany Heavy Industry, lithium-ion batteries producer Gotion High tech and medical equipment maker Lepu Medical Technology (Beijing) said last week they are planning to offer global depository receipts on Zurich's SIX Swiss Exchange.
Sany is working with Citic Securities and UBS on the planned GDR offer which could raise about US$1bn in the second quarter, said people with knowledge of the matter. Meanwhile, CICC is leading the deals of Gotion and Lepu, according to people familiar with the situation.
In their respective announcements, the three companies all said their planned listings are “to respond to the call of China’s capital market policies to deepen the interconnection of capital markets between China and Europe, and the overseas capital markets will help promote the development of the Chinese real economy”.
On Wednesday, Chinese Vice Premier Liu He said at a State Council conference that China will continue to support overseas listings by its companies. The China Securities Regulatory Commission announced afterwards that it will “conscientiously implement the arrangements by the State Council conference, and will promote the implementation of the new regulations on the overseas listing of enterprises as soon as possible”.
The developments came after massive sell-offs in US-listed Chinese shares in the past few days. The rout started after the US Securities and Exchange Commission last week identified the first batch of companies whose audits US regulators are unable to inspect under the Holding Foreign Companies Accountable Act and that may be forcibly delisted as a result, causing US-listed Chinese stocks to plunge.
Prior to Liu's comments, Chinese stocks had slumped to 21-month lows and mainland firms listed in Hong Kong plumbed 2008 lows. After he spoke, Hong Kong's Hang Seng Index surged 9.1% on Wednesday and China's blue chip index CSI300 jumped 4.3% the same day.
The SIX Swiss Exchange GDR listing plans follow the inclusion of more European countries such as Switzerland and Germany into the Shanghai-London Stock Connect trading link last December by the CSRC. Eligibility criteria were also extended to some Shenzhen-listed companies.
A spokesman for SIX Swiss Exchange told IFR that China and Switzerland kicked off the cooperation three years ago. “SIX is working with the relevant authorities and partner exchanges to progress on the journey started in 2019, after signing of the MoUs with Shanghai and Shenzhen, to be able to establish an attractive Stock Connect framework with Chinese exchanges that will allow Chinese companies to tap into the Swiss capital market, while ensuring the highest standards of investor protection,” he said.
The three companies planning GDR offerings would become the first from China to be listed on the Swiss bourse.
The SIX Swiss Exchange spokesman said there has been a lot of interest from both sides in the planned trading link, but cautioned that the exchange “will officially communicate together with the relevant Chinese exchange once the Stock Connect is ready”.
Sany said in a statement on Tuesday that the offering could help promote its international strategy and brand, expand fundraising channels, and optimise the equity structure. The offering size and the use of proceeds are still under discussion, it said.
Europe is Sany's second-biggest international market behind Asia Pacific. Revenue generated from Europe amounted to Rmb3.75bn, up 46.8% year on year. Asia Pacific contributed Rmb5.67bn, the US Rmb1.96bn and Africa Rmb1.07bn.
"In the past, South-East Asia was the main source of our overseas income, and now the income from Europe is also growing rapidly," a spokesman for Sany told IFR.
He said that choosing Switzerland as the listing venue is "a result of comprehensive considerations", such as local policies and financial markets, as well as investors.
Sany acquired German manufacturer of concrete pumps Putzmeister in January 2011 and German truck mixer-maker Intermix in July 2012.
The biggest shareholder in Shenzhen-listed Gotion High Tech is Volkswagen with a 26.5% stake. Gotion said it will build a new generation of power battery production lines in Europe, North America and Asia, and the GDR offering will optimise its shareholding structure to bring in more international investors.
ChiNext-listed Lepu Medical Tech said that it will build production plants in overseas countries or regions to help with production, sales, and marketing, and the GDR offering will introduce more international institutional and industry investors.
In June 2019, Huatai Securities raised US$1.7bn from a landmark sale of GDRs in London, marking the launch of the long-awaited trading link between Shanghai and London that opened a new channel for Chinese companies to raise funds. Since then, three more Chinese companies – China Pacific Insurance Company, China Yangtze Power and SDIC Power – have also listed in London via this route.
However, the trading of the London-listed Chinese companies is very thin compared to the home market. For instance, the 30-day average trading volume of SDIC Power's A-shares is 16.7m shares while, in the past 30 days, there was only one day (March 2) when there was any trading in London with 790 shares, a volume of US$12,320, changing hands.