Customized services, relaxed norms catch attention of Chinese companies

Traders work at the Frankfurt Stock Exchange. More Chinese companies will be listed in European stock markets this year. [Hannelore Foerster/Bloomberg News]

More Chinese companies will be listed on European stock markets this year, European exchange operators say.

Wu Jianhong, chief representative of Germany's Deutsche Boerse AG, says seven Chinese companies have already made initial public offerings (IPOs) and they have raised 1.22 billion euros on the Deutsche Boerse-owned Frankfurt Stock Exchange this year.

Another five Chinese companies will be listed by the end of the year, bringing the total to 12.

"We will provide customized services to Chinese firms listed in Europe. Moreover, Deutsche Boerse can help them improve share liquidity and brand value through promotional projects," Wu says.

"Chinese companies can also choose English to write their financial reports in our stock market."

Unlike other major bourses in the world, the German government supervises the Deutsche Boerse Group. The bourse charges 750 to 5,500 euros to listed companies for annual management fees.

Most of Deutsche Boerse's profit is from stock buying and selling services, instead of fees from issuing shares.

Up to 27 companies from China are listed on the Deutsche Boerse. Ten of these were listed in 2010, nine of which were IPOs and the other was a transfer from another exchange.

"European capital markets are becoming more attractive for Chinese companies which are not qualified or don't have enough resources to be listed on domestic stock markets," says He Jingtong, a professor at the Institute of Economics of Nankai University in Tianjin.

He says it will be easier to connect with European clients and partners after financing in Germany, one of European Union's financial centers. Chinese companies can have the opportunity to set up a trustworthy international brand image and build up business connections with other European enterprises.

Wang Qian, chief representative of the London Stock Exchange's (LSE) Beijing office, says at least eight Chinese companies will

be listed on the LSE this year and her bourse will help listed companies in a more flexible way.

"The LSE expects to see Chinese companies' steady upward trend, instead of dramatic fluctuations as has frequently occurred on the mainland stock markets," Wang says.

"In London, a company can communicate with a regulator at anytime without violating regulations."

The LSE with its four markets - the Main Market, Alternative Investment Market, Professional Securities Market and Specialist Fund Market - is regulated and supervised by the UK Listing Authority (UKLA).

IPOs have to obtain UKLA approval, except fast-growing companies launching in the Alternative Investment Market (AIM) market, the LSE's international market for smaller companies. In recent years, many Chinese companies saw the AIM as a feasible choice for foreign capital.

By the end of April, 51 Chinese companies had listed on the LSE. Eight were listed on the Main Market and 43 were listed on the AIM. Last year, eight Chinese firms were listed on the LSE.

"To small or medium-sized companies, the AIM market doesn't have rigid criteria in setting and checking the market value, fund-raised amount, previous stock trading record, type and size of the company," says Nick Tulloch, head of emerging markets at Arbuthnot Securities, a British integrated investment bank.

Tulloch also says that a company planning its IPO should be sure its financial estimates for the current term are based on factors like solid performance.

"In comparison with the US stock markets, Chinese companies are more likely to choose the European stock markets, because the supervision environment in Europe is relatively loose," says Xu Xiaochun, a senior associate specializing in stock trading at Mayer Brown International LLP, an international law firm.

"European investors are also keen to increase their allocations to emerging market investments and China in particular, especially to China's automobile, high-tech, clean energy and banking groups."

After 30 years of development, China is gradually shifting its economic momentum from exports to domestic demand. Even during the global economic downturn, China's GDP still presented a strong growth of 9.1 percent in 2009 and 10.3 percent in 2010.

Some investment institutions and individuals in Europe want to share the high return on investment in Chinese assets by buying Chinese stocks.

"What concerns the European investors is the potential growth rate," Xu says.

"From their point of view, Chinese companies with a conceivable higher growth rate and promising future are worth their investment."

Moreover, the world's major exchanges are making more money from new options and complex investments known as derivatives.

In response, the LSE and the Toronto Stock Exchange in February announced a $2.9 billion (2.06 billion euros) merger.

Xu says the move will attract more State-owned and private Chinese companies from the energy and natural resource sectors to the LSE this year, because both the LSE and Toronto Stock exchange are good at helping these types of companies to draw more capital from various international investment institutions and rich individuals.

"The European stock markets will continue to lure Chinese companies because they offer high-quality capital pool," Wang says.

"On the other hand, Chinese enterprises also need European bourses to promote their reputation and get funding in different currencies."