LSE stalks China floats

The London Stock Exchange (LSE) has spent the last five months trying to win Chinese listings, but market watchers say it faces a tough time as mainland firms are increasingly less reliant on foreign cash.

The LSE hopes to woo new business by stressing its China-hungry European investor base and initial public offer fees that are cheaper in London than in New York.

Hong Kong is the dominant overseas venue for Chinese IPOs, leaving the LSE, the New York Stock Exchange, Nasdaq and Singapore as alternative markets.

"Potential listings is by far the dominant short-term focus," Jane Zhu, LSE's head of Asia-Pacific, said.

"For new business development on the listing side, [top markets are] China, India and Russia - so two of the three are from Asia," Zhu said.

Last year, Chinese companies sold US$6.3 billion ($NZ9 billion) of IPOs through Hong Kong listings and have sold US$12.2 billion in new issues since the beginning of 2002.

In December, the LSE landed a major coup when Air China listed its shares in Hong Kong and London in a US$1.2 billion IPO.

The LSE has also sought to strengthen its mainland ties through deals with the Shanghai and Shenzhen exchanges.

But the LSE's aggressive move has some sceptics. Bankers say there is plenty of investor cash in the continually developing Asian market and there is more prestige and visibility through a NYSE offering.

"Some of those things are harder to achieve, frankly, with an LSE listing rather than an ADR," said one investment banker, referring to American Depositary Receipts.

Zhu is taking aim at the NYSE, saying listing is more difficult on the world's largest exchange.

"Hong Kong listing rules are identical to UK ones," she said.

To list in the US, Chinese companies must comply with more stringent Securities and Exchange Commission standards and US accounting principles.

Then there is Sarbanes-Oxley, the US SEC rules enacted in 2002 in the wake of the Enron fiasco.

"Many Chinese companies call it 'Mission Impossible'," Zhu said.

Chinese firms may also favour a London listing if they are considering acquisitions in Europe.

"The target would be much happier to take those UK-listed shares."

Some investment bankers argue a London listing is not necessary to enlarge a firm's shareholder base, as there is plenty of cash in Asia and foreign capital is usually free to invest directly in the region.

That's true for big global funds like Fidelity. But many pension funds in Europe, limited to buying locally listed shares, have a great appetite for Chinese stocks, Zhu said.

She said US investment banks seem to be biased toward NYSE listings where IPO underwriting fees hover around 7 per cent.

She estimates that is 2-3 per cent higher than London's fees.

Indeed, European investment bankers in Asia seem to be more comfortable with the LSE.

"If people want the extra visibility of a secondary listing, then London looks like a more pragmatic choice," said Piers Higson Smith at ABN AMRO Rothschild.

"[The LSE is] probably ramping up its approach at the right time," he said. "The PR aspect can be very powerful. It's good for China and it's good for London markets."

- REUTERS