According to many financial analysts, China is well-poised to surpass Hong Kong in 2010. According to reports released by both PricewaterhouseCoopers (PwC) and Ernst & Young, domestic companies are expected to raise more funds via Shanghai and Shenzhen IPOs than those in Hong Kong this year.
The perennial question that underlines the report is whether domestic bourses will seize the IPO crown from Hong Kong this year.
Local boards power up
A statement made by PwC's China markets leader Frank Lyn in June noted that the China IPO market, especially Shenzhen SME Board and ChiNext, has picked up significantly in the first half of the year, despite the uncertainties on global recovery and market volatility.
Notably, in a testimony released by the New York Stock Exchange Euronext Group, it was reported that in the first half of 2010 the Shenzhen Stock Exchange listed 161 companies raising US$22.6bn, becoming the number one IPO venue in the world. The regional board took over previous IPO market leaders like the New York and Tokyo stock exchanges, while Shanghai tagged closely behind in the fourth place with a total value raised of US$8.2bn.
According to Lyn, the boards' good performance demonstrates that Chinese companies are developing well along with the continuing growth of domestic economy and become more mature. Exemplifying this is the long list of IPOs launched on domestic boards in recent months. Industrial Securities (represented by Grandall and AllBright) recently listed on the Shanghai Stock Exchange for US$500m, and Beijing Haohua Energy (represented by Zhong Yin) also listed on the same board to raise US$293m.
Domestic companies have raised RMB213bn from 176 IPOs in the first half of the year, more than the total (RMB187bn) raised in 2009. According to PwC's predictions, total new listings on the country's two bourses in Shanghai and Shenzhen may reach 300 in 2010, compared to 99 last year.
Wayne Chen, partner and head of capital markets practice at Llinks, attributes investor confidence to the booming local market. "There are many elements that have boosted investor interests in local listings. This includes the increasing listing value, the economic standing of China as a whole and the strict regulations of the China Securities Regulatory Commission (CSRC)," says Chen.
CSRC has been reputed to be extremely strict with its approval procedures. Chen explains that the authorities now require more than just meeting basic listing requirements, like a review of the status of the company in its industry, according to its peers. Such strict regulations have resulted in the local board being dominated by the top-tier companies, which is both inviting and assuring to potential investors. "This type of confidence, at this time, is a notion that is lacking in investors in international markets," says Chen.
Yet even with a strong pipeline of deals and relentless investor interest, manoeuvring around concerns about capital market trends and client requests is no easy feat. For both onshore and offshore listings, law firms have to conduct extensive due diligence (capital and asset restructuring) as part of the legal services rendered. Advisors also have to ensure that their clients are compliant with strict CSRC requirements and offshore regulations.
But lawyers admit that beyond market trends and textbook regulations, there are other difficulties. "Inevitably, some clients will fail to disclose their complete business conditions and this makes it hard," says Arthur Liu, a partner at Jincheng Tongda & Neal (JT&N). "Work has to be redone, and even more comprehensively the second time round to ensure that it is all compliant."
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