London seeks to improve its game as Zurich draws Chinese listings

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By Samuel Shen, Li Gu and Tom Westbrook

SHANGHAI/SINGAPORE, (Reuters) – London is working to make British listings by mainland Chinese companies faster and cheaper, aiming to fend off competition from Zurich for secondary share sales in Europe, Britain’s trade commissioner to China, John Edwards, said.

Some Chinese firms interested in listing overseas have in recent years turned to Europe, as U.S.-listed Chinese companies have often found themselves caught in the currents of Sino-U.S. tensions.

The London Stock Exchange and British officials are ramping up efforts to build a robust pipeline of Chinese firms, trading on London’s status as Europe’s deepest capital market.

“It is a priority of ours,” Edwards told Reuters in an interview.

A regulatory crackdown by Beijing on overseas listings helped reduce U.S.-listings by Chinese firms to a trickle in recent years. New rules have since been laid out and a separate auditing spat between the two powers has been largely resolved. That said, broad bilateral tensions between the world’s two largest economies remain.

Edwards said he thought London was “an obvious choice” for many Chinese companies “given the issues around the U.S.-China relationship.”

“Now it is more sensible to raise that company’s capital in Europe and the United Kingdom than in the U.S.,” he said. The Shanghai-London Connect, launched in 2019, allows China-listed companies to sell Global Depository Receipts (GDRs) on the London bourse. However, the China-Switzerland Connect – an eight-month-old rival scheme – is gaining more traction among Chinese companies, partly due to a relatively easier process.

The London Stock Exchange is “actively looking at how they can address some of the issues,” Edwards said.

“They speak to advisers, they speak to potential targets, and people say, is there a way in which you can simplify some of the procedures so that it takes less time or the fees are lower? And then you’re more competitive than Switzerland.”

A British official who declined to be identified told Reuters separately that the London Stock Exchange Group (LSEG) LSEG.L could be making changes later this year.

LSEG, which has been promoting Britain’s capital markets to Chinese companies through a series of events in China in recent weeks, declined to comment on future plans.

LSEG owns financial news and information business Refinitiv, formerly a division of Thomson Reuters. It pays Thomson Reuters for news it distributes on Refinitiv terminals. Thomson Reuters holds a minority stake in LSEG.

QUALITY VS QUANTITY

Currently, only five Chinese companies, including Huatai Securities Co and Ming Yang Smart Energy Group Ltd have listed in London, after raising roughly $6 billion issuing GDRs.

Eleven smaller Chinese companies, such as Lepu Medical Tech and Gotion High-Tech are listed on the SIX Swiss Exchange, and have raised around $3.5 billion in total.

“I don’t think it’s a number of listings game…issuers need to think very carefully about what they want out of an international list,” Edwards said.

He brushed aside concerns that British audit requirements are too stringent for Chinese companies.

“If you want access to deep and liquid pools of capital, profile and branding, then come to London; If you’re looking for light touch regulation, then there are other options.”

Edwards said officials have identified hundreds of Chinese companies that could potentially issue GDRs in London and “are actively approaching them at the moment.”

Having a critical mass of Chinese GDRs in London could attract more investors, increase liquidity, and pave way for innovative tools such as GDR indexes, he said.

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