More A-share progress needed to tempt tech giants
With supply-side reforms in China’s domestic capital market gathering pace, there have been discussions about overseas-listed Chinese companies – mostly technology firms – potentially relisting in the A-share market. It has become a hot topic during the ongoing two sessions, with some tech bosses who are also deputies and members of the annual legislative and consultative gatherings expressing their willingness to refloat their companies at home.
If this were to become a trend it would certainly add luster to the mainland stock market, which missed out on the biggest domestic tech names such as Baidu, Alibaba and Tencent when they sought overseas listings instead. But it’s worth nothing that considerable efforts will be required to clear the regulatory roadblocks for these firms to come back to the domestic market. Also, relisting at home shouldn’t be taken for granted, as it could be the case that the mainland market might not be the best place for these companies.
Nonetheless, following a policy shift that is intended to fast-track IPOs for unicorn firms – startups valued at more than $1 billion – in the fields of biotechnology, cloud computing, artificial intelligence and high-end manufacturing, chief executives of overseas-listed technology giants have expressed eagerness to refloat at home during the two sessions.
Pony Ma Huateng, CEO of Hong Kong-listed Tencent Holdings and a deputy to the 13th National People’s Congress (NPC), told reporters on Monday the company would relist in the domestic market when the conditions are ripe.
William Ding Lei, founder and CEO of NASDAQ-listed Chinese gaming giant NetEase and a member of the 13th National Committee of the Chinese People’s Political Consultative Conference (CPPCC), said on March 2 that the company would certainly consider relisting in the A-share market.
An efficient and advanced financial market is indispensable for China to sustain its economic growth, Ding said, according to a report by Shanghai Securities Journal. He also said that China can draw lessons from the way in which the US has developed its capital markets.
The topic of enticing Chinese firms to relist at home is not new, but the regulatory hurdles in the domestic capital market that persuaded the companies to look overseas in the first place have prevented any genuine breakthroughs. Recent changes could make a difference. The country has moved to strengthen
the market delisting rules and will also fast-track share issuances by unicorn firms, along with other supply-side reforms in the country’s equity market.
In his annual government work report delivered Monday, Premier Li Keqiang stated that China will support leading innovative companies in going public.
A typical example is Foxconn Industrial Internet, a unit of Apple contractor Foxconn, which has apparently been offered a shortcut to a mainland listing. Its stock prospectus was made public on the website of the China Securities Regulatory Commission (CSRC) on February 9, and its application for a listing on the Shanghai Stock Exchange is scheduled to be reviewed on Thursday. Market watchers expect the company to make its market debut next month, which is much faster than usual. Normally, it takes at least six months for a company to get listed after filing its prospectus.
However, the policy efforts thus far have not yet been enough to entice the country’s tech giants back to the home market.
Baidu opted for a listing in the US because its use of a variable interest entity (VIE) corporate structure made it a foreign-backed firm according to Chinese laws and regulations, Baidu CEO Robin Li Yanhong, who is also a CPPCC National Committee member, was quoted as saying on March 2 by domestic financial media outlet Caixin. This obstacle currently remains, but whenever policy allows Baidu to come back, a relisting would be possible, Li said.
Also, loss-making companies are not allowed to list in the domestic market, which meant that 58.com had no choice but to seek a listing in the US instead, Yao Jinbo, CEO of the NYSE-listed Chinese classifieds site and also an NPC deputy, told a group of reporters on Sunday.
The company hopes to be among the first batch of US-listed Chinese firms relisting in the mainland market, whether the shift would be enabled by the issuance of Chinese depositary receipts (CDR) or other options, according to Yao. CDR can enable domestic investors to hold shares elsewhere, thus allowing offshore-listed mainland firms to sell shares via depositary receipts in the home market.
But more regulatory changes that can respond to concerns among these tech gurus are required. Also, relisting in the mainland market may not necessarily be an ideal choice.
Only a relatively small portion of China’s M2 money supply flows to the stock market, which means these Chinese firms might not raise that much capital if they opt to relist domestically, Raymond Deng, investment strategist CIO of consumer investment and insurance products at DBS, said in an interview in Beijing on Tuesday.
Additionally, the domestic market is not yet on a par with Hong Kong or the US in terms of the availability of various derivative financial instruments that can help investors hedge their portfolios against a market selloff, so overseas-listed firms might be wary of big stock swings in the domestic market, he said.
If the domestic equity market could be more aligned with international markets, then it might genuinely be a magnet for well-known Chinese firms.