The popularity of Chinese companies going public in Europe surpasses that of the United States: many A-share companies are competing to issue GDRs Venture capital institutions actively operate start-ups to go to Europe for direct IPOs

21st Century Business Herald reporter Chen Zhi reports from Shanghai

The listing of Chinese companies in Europe is becoming a new trend.

According to the latest data from Dealogic, the total amount of money raised by Chinese companies to list in the United States has plummeted to $303 million this year from about $13 billion last year. In comparison, Chinese companies have raised about US$2.6 billion in the European market through the issuance of GDRs (Global Depositary Receipts) and other means this year.

At the same time, more and more A-share listed companies are actively operating to issue GDRs in Europe and complete listing and fundraising.

In the eyes of industry insiders, behind this, firstly, due to factors such as the delisting of Chinese concept stocks, the willingness of Chinese enterprises to list in the United States has plummeted since the beginning of this year, and secondly, in February this year, the China Securities Regulatory Commission issued the "Provisions on the Supervision of Depository Receipt Business of Stock Exchanges Connected at Home and Foreign Stock Exchanges", advocating A-share companies to issue GDRs and list them in Switzerland, the United Kingdom and Germany, attracting more and more A-share companies to start their journey to listing in Europe.

It is worth noting that Switzerland is becoming the first choice for A-share companies to list in Europe.

After the official opening of the Sino-Swiss Stock Connect depository receipt business at the end of July, the GDRs issued by four A-share listed companies, including Shanshan Co., Ltd., Keda Manufacturing, Guoxuan Hi-Tech and Grammy, were quickly listed on the Swiss Exchange, raising a total of more than US$1.5 billion.

A European investment banker told reporters that the reason is that Switzerland, as a global financial center, has gathered a large amount of global capital, which helps Chinese companies to achieve higher valuations and fundraising for listing in Switzerland, and second, Switzerland continues to adhere to market opening, making many Chinese companies regard Switzerland as a bridgehead to expand the European market.

Reporters have learned that although the amount of Chinese enterprises going public in Europe this year has exceeded that of listing in the United States, compared with the listing in the United States, it is mainly domestic unlisted enterprises, and the current listing in Europe is mainly A-share listed companies, mainly issuing GDRs to raise funds.

"At present, many domestic start-up high-tech companies are paying attention to the valuation and liquidity performance of A-share companies after listing in Europe, as an important basis for whether they decide to list in Europe." A partner of a large domestic venture capital institution told reporters. For a long time, most domestic high-tech start-ups believe that the liquidity and valuation level of the European stock market is lower than that of the US stock market, which makes them worried about listing in Europe.

He pointed out that as more and more A-share companies have landed in the European capital market, many domestic venture capital institutions are suggesting that high-tech entrepreneurs consider listing in Europe. Because in the European capital markets such as the Swiss Stock Exchange, emerging industry companies such as environmental protection technology, AI artificial intelligence, and new energy vehicles are highly sought after, and there is an opportunity to create valuations and IPO fundraising quotas that are no less than those of US stocks; Moreover, many local European investment institutions are also willing to increase the allocation of Chinese assets and share the fruits of China's steady economic development.

Recently, Fang Xinghai, vice chairman of the China Securities Regulatory Commission, said that the China Securities Regulatory Commission will continue to improve relevant institutional arrangements, further facilitate cross-border investment by domestic and foreign investors, and better support the development of cross-border financing of enterprises. Improve market connectivity mechanisms such as GDR and CDR issuance, promote the implementation of the reform of the overseas listing system for enterprises, and support all kinds of enterprises to list overseas in accordance with laws and regulations.

Switzerland becomes a "hot land" for A-share enterprises to issue GDRs to list in Europe

A person from the investment banking department of a domestic securities firm revealed to reporters that the enthusiasm of Chinese enterprises to list in Europe this year originated from the Securities Regulatory Commission's issuance of the "Provisions on the Supervision of Depository Receipt Business of Stock Exchanges at Home and Foreign Exchanges" in February.

"In the past, Chinese companies mainly listed on the London Stock Exchange for financing, but some Chinese companies suffered from low valuations and low liquidity on the London Stock Exchange, which made other Chinese companies worry. Nowadays, with the "Provisions on the Supervision of Depository Receipts for the Stock Connect of Domestic and Foreign Stock Exchanges" to expand the listing destinations of Chinese enterprises in Europe to the Frankfurt, Swiss and other stock exchanges, many A-share companies have begun to study the trading activity and capital accumulation effect of the European capital market, and regard the issuance of GDRs for listing in Europe as an important measure to broaden overseas financing channels. He analyzed to reporters.

The reporter learned that the peak period of Chinese enterprises going public in Europe mainly appeared after the official opening of the Sino-Swiss Securities Market Interconnection Depository Receipt Business at the end of July, when a number of A-share companies listed in Europe had a good valuation effect and trading activity, which completely ignited the enthusiasm of A-share companies to list in Switzerland.

Datayes shows that 7 A-share companies have issued Global Depositary Receipts (GDRs) in Switzerland to achieve listing and financing in Europe, surpassing A-share companies listed in the UK (5). In addition, 3 A-share companies are currently in the process of issuing GDRs, and another 16 companies have announced that they will issue GDRs, of which the majority of A-share companies choose Switzerland and a few choose London.

The above-mentioned European investment banker told reporters that the reason why the Swiss Stock Exchange is favored by Chinese A-share companies is that the Swiss capital market gives a high valuation to emerging industry companies such as environmental protection technology, new energy vehicles, AI and artificial intelligence, on the other hand, thanks to Switzerland's large amount of global funds, they are all interested in allocating Chinese assets, and if Chinese companies go public in Switzerland, they can attract them to invest in Chinese assets "closely".

"In fact, many large European asset management institutions have plans to add Chinese assets, but due to the lack of risk hedging tools and the fact that domestic bank payment rules have not yet adapted, they have not yet adopted the strategy of adding Chinese assets. Now that Chinese companies take the initiative to list in Switzerland and comply with the relevant regulations of the Swiss Stock Exchange to carry out transactions, it will undoubtedly better meet their trading requirements and attract them to achieve the goal of increasing the allocation of Chinese assets by buying Chinese enterprise GDRs. The above-mentioned person from the investment banking department of domestic securities companies pointed out.

It is worth noting that as more and more Chinese A-share companies issue GDRs to be listed in Europe, Chinese securities companies have followed suit to accelerate the layout of the European market.

In June, CICC's UK arm became the first Chinese member of the SIX Swiss Stock Exchange.

Recently, Huatai Securities said it was seeking to obtain a stock trading license in Zurich and Frankfurt.

It is reported that Chinese securities firms such as CITIC Securities and Haitong Securities are considering applying for business licenses to provide various types of investment banking services in the EU.

Jason Elder, a partner at Mayer Brown, said that more and more Chinese securities firms have accelerated their deployment in the European market, indicating that they have sufficient ability to directly contact large European institutional investors, which will help attract more European long-term capital to increase the allocation of Chinese assets and stimulate the enthusiasm of Chinese companies to list in Europe.

Venture capital firms have worked hard to persuade start-ups to list directly in Europe

More and more A-share companies are listing in Europe through the issuance of GDRs, which has also made domestic venture capital institutions quite "eye-eyed".

The partners of the above-mentioned domestic venture capital institutions told reporters that they recently suggested that some domestic high-tech start-ups consider listing in Europe. After all, as more and more European investors get "close" exposure to Chinese equities, their interest in allocating to Chinese assets will further intensify, especially by allocating Chinese assets across different sectors to effectively diversify the risk of Chinese asset portfolios.

In order to persuade these start-ups to agree to list in Europe, he also compared the valuation and liquidity of China's listings in Europe in the past, and found that this year's A-share companies listed in Europe were better than the former in terms of valuation and liquidity.

"In fact, many of our European investors (LPs) are also happy to see investment projects listed in Europe. On the one hand, this makes them feel more at ease and reduces the risk of cross-border capital exchange flows, on the other hand, they can also rely on their own network resources in Europe to attract more local secondary market investment institutions to inspect these Chinese enterprises, and further enhance the valuation and trading activity of the latter. The partner of a domestic venture capital institution analyzed to reporters.

However, reporters have learned that compared with the enthusiasm of A-share companies, most domestic high-tech start-ups are still holding a wait-and-see attitude. One of the important reasons is that due to the risk of global economic recession, many domestic high-tech start-ups are worried that the European capital market will put forward quite strict requirements for corporate profitability, business development stability and sustainability, and the company's ability to resist risks, resulting in their "busy work".

The aforementioned European investment banker told reporters that under the shadow of the global recession, many European secondary market investment institutions do put forward higher requirements for the profitability of listed companies and the sustainability and robustness of business models, but at the same time, they are still interested in allocating Chinese assets, because on the one hand, this can diversify the asset concentration risk of their excessive allocation of European and American assets, and on the other hand, they can achieve more considerable investment returns by sharing the fruits of China's steady economic development.

"At present, we will give priority to promoting the direct IPO of Chinese new energy vehicles, environmental protection technology and other start-ups planning to expand their markets in Europe, once they successfully land in the European capital market, it will form a good demonstration effect and inspire more Chinese high-tech start-ups to choose to list in Europe." He said bluntly.

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