As of May 10, this year, seven companies including Sany Heavy Industry, Guoxuan High-Tech, Leopu Medical, Shanxiang Co., Ltd., Keda Manufacturing, Fangda Carbon, and Green Energy Materials have planned to issue GDRs and list on the Ruixin Stock Exchange.
What are the advantages of issuing GDRs compared to issuing stocks? What is the purpose of domestic enterprises issuing GDRs, and are they suitable for domestic individual investors to participate in? Compared with other national stock exchanges, why has the Swiss Stock Exchange become the preferred destination for most companies? Frost & Sullivan's Executive Director for Greater China, Mr. Wei Li, recently interviewed by Securities Daily to discuss why domestic enterprises are increasingly choosing to issue GDRs on the Swiss Stock Exchange for listing.
Securities Daily
On May 10th, Wang Jianjun, Vice Chairman of the China Securities Regulatory Commission (CSRC), pointed out in an interview that the CSRC will introduce more practical measures to expand opening up. Among these, it was mentioned that 'promoting the issuance and listing of interconnectivity depositary receipts by listed companies'.
The reporter found that the process of domestic listed companies going public on the Swiss Stock Exchange (hereinafter referred to as 'Swiss Exchange') with Global Depositary Receipts (GDRs) has accelerated recently, with several companies disclosing their latest progress. On May 10th, Shanxi Antler Co., Ltd. held its annual general meeting of shareholders for 2021 to review multiple proposals regarding the issuance of GDRs and listing on the Swiss Exchange. Prior to this, from May 7th to 9th, three companies including Guoxuan High-Tech, Keda Manufacturing, and Green Energy Materials also disclosed their latest developments regarding the issuance and listing of GDRs.
Since the release of the new interconnection regulations this year, a total of 8 listed companies have announced their plans to issue GDRs and list overseas. Seven of them have set the Hong Kong Stock Exchange as their destination, aiming for a 'zero' breakthrough. Another company has set its target on the London Stock Exchange.
On February 11 this year, the China Securities Regulatory Commission (CSRC) issued the 'Regulatory Provisions on the Interconnection and Connectivity of Depository Receipts between Domestic and Overseas Stock Exchanges', expanding the scope of interconnection and connectivity depositary receipts to Switzerland and Germany. Since then, Switzerland has become a popular listing destination.
According to relevant announcements, as of May 10th, this year, seven companies including Sany Heavy Industry, Guoxuan High-Tech, Lepu Medical, Shanxi Tongguo Co., Ltd., Keda Manufacturing, Fangda Carbon, and Green Energy Materials have planned to issue GDRs and list on the RSE.
In terms of planning the GDR listing process on the Hong Kong Stock Exchange, Keda Manufacturing has made the most progress. On May 9th, Keda Manufacturing issued an announcement disclosing that its GDR application has been accepted by the China Securities Regulatory Commission (CSRC). In addition to the aforementioned Suntech Co., Ltd., the related proposals of Guoxuan High-Tech will also be submitted to the shareholders' meeting for review on May 23rd. The related proposals for the GDRs of Green Motion and Lepu Medical have been approved by the board of directors. Additionally, Sany Heavy Industry and Fangda Carbon also plan to issue and list their GDRs.
The reporter from Securities Daily noticed that Guoxuan High-Tech has disclosed the approximate time for the issuance and listing of GDRs. Guoxuan High-Tech announced on May 7th that "this GDR project is conducive to accelerating the company's international strategic layout, building an international brand and image, and meeting the funding needs for overseas business development. Therefore, the company plans to complete the issuance and listing by the end of July." Based on current circumstances, the listings of Keda Manufacturing and Shan Shan Co., Ltd. are progressing faster, with more than one enterprise completing their listings on the Hong Kong Stock Exchange by the end of July.
"By issuing GDRs to raise overseas funds, enterprises can broaden their financing channels, attract high-quality strategic investors, and also enhance their international profile," said Yan Kaiwen, chief strategy analyst at Huaxin Securities, to the Securities Daily reporter.
"Domestic companies issuing GDRs can improve their corporate governance level and further optimize the shareholder structure." Zhu Zhengqin, head of UBS Investment Banking in China, said in an interview with a reporter from Securities Daily that issuing GDRs allows companies to introduce internationally and domestically renowned investors as shareholders, making equity more diversified, improving the corporate governance mechanism, and stimulating innovation vitality.
According to Zhu Zhengqin, judging from the progress of overseas regulatory initiatives, exchanges such as Germany and Switzerland after the expansion have provided support and actively promoted it. Currently, the Swiss Exchange has taken the lead in implementing rules, which is why companies often choose Switzerland as their listing destination for issuing GDRs.
Xiang Wei, Executive Director of Frost & Sullivan Greater China
Xiang Weili, Executive Director of Frost & Sullivan Greater China, told the Securities Daily reporter that Switzerland has a long history in financial services. Swiss banks are at the forefront of the world in cross-border private asset management, and the Swiss market is highly open to overseas investors.
"The planning of overseas GDR issuance by domestic enterprises is related to the company's own financing needs and market preferences. The RCEA is relatively fair in investor protection and regulation, making it attractive to domestic enterprises," said Fu Rao, executive director of the International New Economy Research Institute.
Frost & Sullivan Insight & Extended Readings
Q: Compared to issuing stocks, what are the advantages of issuing GDRs? What is the purpose of domestic enterprises issuing GDRs, and are they suitable for domestic individual investors to participate in?
A:GDR refers to Global Depository Receipts, which are publicly issued globally and are a type of depositary receipt. Issued by depository institutions, they can be traded in multiple markets and are a financial tool used to raise funds in US dollars or euros. GDR allows companies' stocks to be traded in countries where there is no stock market, thereby enabling investors to invest in the stocks of companies that are not listed on local stock markets. The main purposes for domestic enterprises to issue GDR are: 1. Overseas circulation of shares. By issuing GDR, domestic listed companies can allow the equity rights represented by their stocks to circulate internationally under conditions where the stocks are within the country's borders, expanding financing channels, raising overseas funds, and attracting foreign investors; 2. Enhancing the international visibility of domestic enterprises. For individual investors, the threshold for participating in GDR is usually higher.
Q: Compared to other national stock exchanges, why has the Swiss stock exchange become the preferred destination for most companies?
A:Although the Swiss stock exchange has a smaller trading volume, it benefits from the long history of the Swiss financial industry, its leading position in cross-border private asset management among banks worldwide, and its high openness to overseas investors. On February 11th, the China Securities Regulatory Commission (CSRC) issued the 'Regulatory Provisions on the Interconnection and Connectivity of Depository Receipts between Domestic and Overseas Stock Exchanges', which is an 'upgrade' of the 'Regulatory Provisions on the Interconnection and Connectivity of Depository Receipts between the Shanghai Stock Exchange and the London Stock Exchange (Trial)' and expands the coverage of interconnectivity depositary receipts to Switzerland and Germany, setting a precedent for the market. At the same time, China's financial system is further deepening exchanges and cooperation with the financial systems of the aforementioned countries to promote efficient and mutually beneficial integrated development.
Q: How do you view the regulatory authorities' repeated statements 'accelerating the implementation of new regulations for overseas issuance and listing of enterprises'? What positive impact does this have on promoting overseas listings of enterprises?
A:This represents that the China Securities Regulatory Commission (CSRC) will expedite the research and introduction of a new round of measures, steadily expand the scope of targets for the Shanghai-Hong Kong Stock Connect and the Shenzhen-Hong Kong Stock Connect, promote the expansion of the Shanghai-London Stock Connect mechanism, and steadily increase the two-way opening of financial markets. Accelerating the implementation of new regulatory rules for corporate overseas issuance and listing, as well as maintaining smooth channels for overseas listings, will help Chinese enterprises effectively utilize international resources and capital to achieve better development.
*This article is reprinted from the 'Securities Daily' news section, with reporter Xing Meng. The original title was 'Seven listed companies plan to issue GDRs to list on the Ruixin Stock Exchange, with the earliest possible listing before the end of July'.
