China-Australia relations: Covid-19 probe spat adds to tiny capital pool to make Down Under the no-go market for Chinese IPOs

22-Jan-2021 Intellasia | South China Morning Post | 6:02 AM Print This Post

Chinese companies raised a record $281.6 billion from stock markets worldwide last year but none of it was from Australia.

China buys about a third of Australia’s annual exports and is its biggest trading partner. The Australia Stock Exchange (ASX) was among the first overseas exchanges to host Chinese companies after they were allowed to list overseas 27 years ago.

But relations have frayed after Australian prime minister Scott Morrison called for an independent investigation into the origins of the novel coronavirus. Beijing has since suspended imports of Australian barley, beef and lobster, and slapped tariffs on Australian wine.

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And ASX and Australian financial professionals have missed out on the record new listings by Chinese companies, whose fundraising worldwide last year was 90.4 per cent higher than 2019, according to Refinitiv data. Hong Kong, Shanghai, Shenzhen and markets in the United States got the lion’s share, while Australia got none.

But even before tensions arose between Beijing and Canberra over the pandemic, Chinese companies were not opting for Australian listings because its market lacks liquidity.

“Companies that listed in Australia found it very difficult to conduct other post listing fundraising,” said Clement Chan, the managing director of accounting firm BDO. Chan helped two companies list on ASX about five years ago.

Guangdong Corporation was the first Chinese company to list on ASX in September 1993, just two months after Hong Kong hosted its first H-share sale, by Tsingtao Brewery. In the first 10 months last year, stocks worth $971.3 billion traded on ASX. Over the same period, the Hong Kong exchange recorded trade in stocks worth $2.47 trillion. In terms of market capitalisation, the Hong Kong exchange ranked fifth globally at $5.6 trillion, while ASX ranked 16th at $1.4 trillion, according to the World Federation of Exchanges.

The New York Stock Exchange, the biggest market worldwide as well as the largest in terms of market cap, recorded a turnover of $21.7 trillion and was worth $22.4 trillion. Nasdaq, in second place, recorded a turnover of $20.6 trillion during the same period, and its market cap stood at $16.1 trillion.

“It is the business development strategy of the exchange to attract Asian, particularly Chinese, companies to make primary listings, to capture the economic growth in this part of the world,” Peter Marks, head of business development at ASX, told a seminar in Hong Kong in 1994.

Listings in Australia by Chinese companies peaked in 2015, when 10 firms listed on the ASX following the ratification of the China-Australia Free Trade Agreement. More than 50 Chinese companies have listed on ASX since 1993, but only 20 remain, according to ASX data. The last listing by a Chinese company was in 2017.

Moreover, several high-profile corporate scandals have led Australia’s regulator to tighten listing requirements, including requiring companies to have 20 per cent of their stock freely tradeable, up from 5 per cent previously.

“Over the past six years, ASX has tightened its admission rules, guidance and processes, particularly around the minimum spread of investors and minimum free float of shares, to address the challenges presented by companies from emerging markets,” an ASX spokesman said. “Every company listed on ASX, from whichever country they come including from emerging markets, which includes but is not exclusively China must satisfy ASX admission requirements and then meet ongoing compliance obligations,” he added. The Australian exchange has delisted some companies to maintain a high market standard, the spokesman said. Six Chinese companies, including Traditional Therapy Clinics, were delisted by ASX in 2018 after they failed to release financial reports.

The same year, bourse operator Hong Kong Exchanges and Clearing carried out a listing reform that paved the way for secondary flotations by Alibaba Group Holding, which owns this newspaper, and NetEase on the city’s exchange.

More than 1,200 Chinese companies are listed in Hong Kong currently, representing about 80 per cent of its exchange’s market cap and turnover. These firms also accounted for 98 per cent of the total funds raised through initial public offerings in the city last year.

Hong Kong has also managed to attract listings by some Australian companies, such as OPUS Group and gold producer Dragon Mining, which delisted in Australia to list in the city. Mining company Yancoal Australia, which first listed in Australia in 2012, had a dual primary listing in Hong Kong in 2018.

“Australia, Britain and Singapore are among three overseas markets that have aggressively sought Chinese firms to list, but they have failed to achieve critical mass,” said Tom Chan Pak-lam, chair of the Institute of Securities Dealers, an industry body of brokers in Hong Kong.

“Hong Kong and the US are first choices due to their deep liquidity,” he added.


Category: China

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