Listings of Chinese companies surge in Switzerland

December 2, 2022 0 Comments

Since going public in the US has grown increasingly difficult, Chinese companies are considering international listing prospects in Europe, particularly Switzerland.

Yuwell Group, a medical firm listed on the A-share market, stated on November 22 that it will issue Global Depository Receipts (GDRs) and file for listing on the Swiss bourse SIX. According to the company, the decision was made to accommodate the requirements of business expansion and to further enhance core competitiveness and brand influence.

Then, on the evening of November 23, another A-share-listed business, Hangke Technology, an integrator manufacturer for lithium cell processing systems, announced that it had been given permission to list on the SIX.

In fact, prior to this, multiple firms had applied to issue GDRs for overseas listing or had already done so. As of November 2, 31 A-share listed companies had planned to list overseas by issuing GDRs, of which 24 selected the Swiss exchange, accounting for 77%, data from 10JQKA, a Chinese financial and stock information provider, showed.

A depository receipt is a mechanism through which a domestic company can raise finance from the international equity market. Chinese tech behemoths like Alibaba, NetEase, and Baidu have previously all been listed in the US via the issue of American Depository Receipts (ADRs). Now, GDRs, traded mainly on European stock exchanges, are gaining momentum among Chinese companies as their appetite for US listings wanes.

So, why is the Swiss stock exchange emerging as a top alternative choice for Chinese companies seeking an overseas listing?

Due to heightened control and scrutiny from both China and the US, as well as escalating geopolitical tensions between the two, listing in the US, the world’s largest financial market, has become less appealing for Chinese companies since last year.

The ADR market for Chinese issuers has been largely shut down. According to Refinitiv, only $152.5 million worth of Chinese listings have taken place in the US as of November, compared to $12.8 billion in 2021. Meanwhile, according to Deloitte, the number of IPOs in Hong Kong, the go-to place for Chinese companies to raise international capital, fell 81% during the January-September period, amid tensions between Beijing and Washington as well as market volatility.

But it remains important for Chinese companies to seek overseas listings, as it not only provides access to a more diverse pool of capital, which is crucial for growth, but also helps build brand recognition in international markets. Therefore, turning to Europe, a region that is relatively more neutral and less affected by Sino-US tensions, becomes a viable option.

Known as “the land in the heart of Europe,” Switzerland is a neutral country with a stable political environment and predictable regulations. Moreover, it boasts a robust financial sector, with the SIX stock exchange being the third largest in Europe.

By listing in Switzerland, a company can gain access to abundant capital and seasoned Swiss and international investors, as well as the leading cross-border wealth management companies. 

The Swiss bourse has been working closely with China since this year to pave the way for Chinese companies seeking secondary listings there. In July, SIX officially launched the Swiss GDR-leg of the China-Switzerland Stock Connect, providing a new offshore source of trading liquidity for stocks listed on the Shanghai and Shenzhen exchanges.  

The arrangement was attractive to Beijing because, unlike US regulatory norms, it did not require Chinese companies to make their audit files accessible to Swiss officials.

In addition to a faster listing process, a greater valuation, and reduced post-listing maintenance expenses, SIX is preferred over HKEX.

“The listing process of the Swiss GDR is faster and more efficient than a Hong Kong IPO,” Wang Hang, a Beijing-based partner at Baker McKenzie, told It typically takes around three to four months only from kick-off to completion of a Swiss GDRs.

“Moreover, SIX is a strong avenue for promoting the profile and investment value of these Chinese companies in Europe, particularly for those with a global footprint or in need of finance to fuel their global expansion goals,” Wang said.

At the recently-held Shanghai Global Asset Management Forum, Fu Hao, vice chairman of the Shanghai Stock Exchange’s Global Business Development Professional Committee, said that several Chinese firms have successfully issued GDRs and listed in Switzerland this year, raising $3 billion in total. “While the issue price may be relatively high, it has still been accepted by investors and the market,” he added. 

The amount of money raised from GDRs has surpassed expectations for a number of well-known lithium battery businesses that have already listed on the Swiss Stock Exchange, including GEM, Gotion High-tech, Keda Industrial Group, and Ningbo Shanshan. For instance, Shenzhen-based GEM, one of China’s biggest suppliers of battery raw materials, has received more than twice the anticipated subscription amount for their GDR offering.

Aside from the positives, lack of liquidity is a major concern with the Swiss GDRs, as share sales in Switzerland and even the rest of Europe are not expected to match those in New York. While the $685 million secondary listing of Gotion, a well-known Chinese battery maker, is the largest deal to date under the stock connect scheme, it is dwarfed by the US finance market. Over the past two decades, Chinese companies have raised more than $100 billion from share sales on Wall Street.

As of October, the New York Stock Exchange (NYSE) had a market cap of $22.11 trillion, the Nasdaq came in at $17.23 trillion, and SIXO only had a market cap of $1.7 trillion.

Largest stock exchange operators worldwide as of October 2022, by market capitalization of listed companies / Statista

Even though Swiss Exchange CEO Jos Dijsselhof concedes that the venue has significantly less liquidity than the NYSE and NASDAQ, he still believes that Chinese companies can benefit from trading there. “If a company prefers to be a big fish in a little pond versus a small fish in a large one, then the Swiss Exchange will be more enticing,” he told Chinese financial news outlet Yicai.

According to the CEO, Switzerland is “probably a better place to begin the listing process than the US,” and he anticipates more tech businesses going public there.

According to the executive, another benefit of the exchange is that its volatility is lower than that of other markets. While other stock markets have experienced significant fluctuations this year, the Swiss stock market index (SMI) stayed relatively stable, falling by 14%. 

By comparison, since the beginning of 2022, the Nasdaq Composite Index has fallen by 24.82%, the Shanghai Composite Index has fallen by 13.24%, and the Hang Seng Index has fallen by 20.10%. 

With more than 150 Chinese companies still facing the threat of being delisted from New York, SIX may look to welcome more Chinese issuers in the future. But the option remains challenging because, under the current scheme, only A-share-listed companies are allowed to list on the Swiss stock exchange.

More bourses have joined the ranks of those enhancing China-Europe capital market connectivity. “We are now technically ready to launch the China-Germany stock connect and are happy to welcome A-share companies to issue global depositary receipts (GDRs) in Germany,” Niels Tomm, representative of the board at Deutsche Börse, said at the Shanghai Global Asset Management Forum.

Photo by Hans Eiskonen on Unsplash

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