Firms should get their foot in the door of foreign FTZ listings

The Shanghai free-trade zone offers a side door into China’s A-share market for international companies, but the arduous process means so far it has received little attention. But with regulators planning to make the process easier, international companies should start paying attention.

  • By Jonathan Breen
  • 03 Apr 2017
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China has in the past been lukewarm on the idea of listing foreign-invested enterprises (FIEs) because of the wealth of competition already in the A-share market. After all, the register of companies waiting to list runs into the hundreds. But regulators have begun to reverse their position and are encouraging FIEs to venture onshore.

The joy for multinationals looking at an A-share opportunity is that the process for them to list would be no different than for any domestic company. All they need is the okay from the Ministry of Commerce, according to lawyers familiar with the system.

It might not be much but in China where foreign companies often face a much bigger hurdle to access Chinese capital, it is noteworthy and worth taking advantage of. In this case, it opens up a market offering better valuations than any other sizeable international stock exchange and one that has an abundant pool of liquidity.

An initiative to get FIEs listed onshore was first touted nearly a decade ago and some top global companies were quick to get involved, but it petered out. There also followed talk of an international board on the Shanghai Stock Exchange (SSE), but that idea died too.

This time around things appear different. The programme fits comfortably into a wider campaign by the communist state to show that it is opening up to global markets, particularly at a time when the US and the European Union are preoccupied with internal politics.

So even those multinationals that got rebuffed 10 years ago should consider taking a second shot.

Granted, there are elements of the A-share market that foreign firms should be wary of, such as the huge presence of mom and pop investors trading from the bedroom that can cause wild swings in the market.

And Beijing still has issues to handle, including the idea that if an FIE gets too high a valuation then it appears domestic investors are paying a premium for shares that if listed in the international market could be picked up at a fraction of the price.

But for a multinational company with business in China and a presence in the Shanghai FTZ, it is worth taking a chance. A number of companies are already reaching out to lawyers and bankers, who are predicting the first FIE listing on the SSE within 18 months.

There’s no doubt that once the first few get the go-ahead, the trickle of names will soon turn into a flood. Not to mention that China often rewards companies that show an early commitment to new initiatives. So rather than get stuck at the back of the queue, companies should aim to be the first through the door. 

  • By Jonathan Breen
  • 03 Apr 2017

Panda Bonds Top Arrangers

Rank Arranger Share % by Volume
1 Bank of China (BOC) 18.86
2 Industrial and Commercial Bank of China (ICBC) 14.39
3 China Merchants Bank Co 14.21
4 China Merchants Securities Co 8.85
5 Agricultural Bank of China (ABC) 5.90

Bookrunners of Asia-Pac (ex-Japan) ECM

Rank Lead Manager Amount $bn No of issues Share %
  • Last updated
  • Today
1 China International Capital Corp Ltd 3.40 16 15.11%
2 Morgan Stanley 3.15 9 13.99%
3 CITIC Securities 1.85 5 8.23%
4 China Securities Co Ltd 1.64 4 7.29%
5 Citi 1.49 9 6.60%

Bookrunners of Asia Pacific (ex-Japan) G3 DCM

Rank Lead Manager Amount $bn No of issues Share %
  • Last updated
  • Today
1 Citi 4.74 23 8.13%
2 HSBC 3.87 34 6.65%
3 Credit Suisse 3.37 24 5.79%
4 UBS 3.28 18 5.63%
5 BofA Securities 3.23 10 5.55%

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