China is urging domestic companies to look at listing in London, several sources told Reuters, as the country aims to revive deals under a Stock Connect scheme and strengthen overseas ties in the wake of the coronavirus crisis.
The Shanghai-London Stock Connect scheme, which began operating last year, aims to build links between Britain and China, help Chinese companies expand their investor base and give mainland investors access to UK-listed companies.
The original plan was for several companies to take part in the scheme in the first couple of years, but so far only one company — Huatai Securities — made the trip from Shanghai to London last June. But now Chinese authorities have given the go-ahead for China Pacific Insurance and SDIC Power to move ahead with their London-listing plans, the sources said, after both deals were halted last year.
Preparations For Secondary Listing
They also gave the nod to China Yangtze Power to begin preparations for a secondary listing on the London Stock Exchange, the sources said, speaking on condition of anonymity as the matter is confidential.
The China Securities Regulatory Commission, the Shanghai Stock Exchange and China Pacific Insurance did not immediately respond to Reuters' requests for comment. SDIC Power and China Yangtze Power declined to comment. The London Stock Exchange declined to comment.
Under the London-Shanghai Connect Scheme, first announced in 2018, Chinese companies are allowed to add a secondary listing of Global Depositary Receipts in Britain that would be linked to shares in Shanghai. The sources, including officials from banks, government and exchanges, said that the aim was to push for a resumption of listings under the Stock Connect scheme as China seeks to improve ties with the outside world and help to fund its post-lockdown recovery.
"In the second half of this year, we could see one or maybe two Chinese companies list in London," said one of the sources, who is closely involved in the process. "China is among the first countries to come out of lockdown, and is keen to get back on track with plans to improve trade relations with the UK," he added.
Anti-China sentiment in the United States on several fronts and the troubles surrounding U.S.-listed Chinese coffee chain Luckin Coffee may have made the route to New York harder to navigate.
In London-Shanghai listings pipeline, China Pacific Insurance is likely to be the first Chinese company to make its London debut this year, seeking to raise between $2 billion and $3 billion, and it could price the sale in September or October this year, a second source said.
China Yangtse Power is another sizable listing, which could raise about $2.5 billion from a deal that will equal about 5% of its share capital, the second source said. The share listings will not necessarily be an easy sell in the current environment, a third source said, who is a London-based banker involved in some of the transactions.
"The IPO market is like to remain shaky for a good while yet, and these are not 'need to own' assets. Investors will already be busy supporting the companies in their portfolio and are likely to be selective," he said. The market for initial public offerings (IPOs) has been all but shut since the outbreak of COVID-19 across the world, which has hit global economic growth, wreaked havoc on stocks and pushed market volatility to its highest in years.
Many companies have been raising funds in the secondary markets to keep businesses going through the lockdowns imposed in much of the world. But there were only eight new listings in the first quarter of 2020, the lowest number since 2009, Refinitiv data showed.