Chinese firms can still list abroad-regulator
By Daisy Ku
LONDON, June 5 (Reuters) - China has not shut the door on overseas listings for domestic firms, a Beijing official said on Thursday, even though regulations that took effect in 2006 have dried up the flow of new foreign listings.
Those privately-owned Chinese companies that have been able to list abroad are quoted on exchanges in Hong Kong, London and New York as "red chips" -- offshore firms that hold operations in China.
The purpose is to tap funds from outside China and to achieve a certain immunity from Chinese government control.
The government introduced in September 2006 a set of rules called Circular 10 to re-establish control of the private sector and to better monitor its activities.
The rules required pre-approval from six ministries for any Chinese resident-owned company wishing to set up special purpose holding companies offshore. "China will continue to support qualified Chinese firms to list overseas. The introduction of Circular 10 just spells out the rules," said Han Ping, deputy director-general of China Securities Regulatory Commission (CSRC), after speaking to the Boao Forum for Asia International Capital Conference in London.
Overseas initial public offerings (IPOs) by Chinese companies amounted to $38.7 billion in 2006, but fell to $37.7 billion in 2007, even though listings within mainland China boomed over the same two years. London listings of Chinese firms accounted for $219.8 million of IPOs in 2006, but only $74.5 million in 2007, according to Thomson data.
London has yet to see a Chinese IPO this year, while Nasdaq (NDAQ.O) saw only one Chinese firm raising $47.5 million.
Chinese companies that got themselves through the approval process before September 2006 are still trickling onto the London bourse.
"If a privately-owned Chinese firm had become a so called "WOFE", or wholly foreign owned entities, before September 2006, it can go public wherever it likes. That's why we still have some Chinese IPOs in London," a London based lawyer said.
"But it seems that no firms have gone through the approval process since Circular 10 came into effect, and the pipeline will dry up," he said.
China has many reasons to limit overseas listings.
As the country's foreign reserves grow more than $70 billion a month to reach $1.8 trillion in April, it wants to limit inflows of foreign capital from overseas IPOs.
And like Russia and Dubai, China is eager to bolster the country's domestic bourses by encouraging companies to list locally.
A year ago, Chinese firms themselves were eager to seek domestic listings because of the higher valuations offered on the Shanghai bourse and Shenzhen bourse. This is partly because Chinese investors are restricted on investments abroad.
But many such IPO candidates are still on the waiting list, and the benchmark Shanghai Composite Index .SSEC has fallen some 37 percent since reaching an all-time high in September.
"A client applied for a Shanghai listing some 18 months ago is now turning to London's AIM (Alternative Investment Market) as they can't wait any longer," a London-based investment banker said.
British Prime Minister Gordon Brown opened the London bourse's office in Beijing earlier this year, and the exchange is confident that the flow of Chinese listings will continue.
"Circular 10 won't stop overseas listings. I believe China won't close the door," said Jane Zhu, London Stock Exchange's (LSE.L) Asia Pacific head. (Editing by Andrew Callus)
