China stock market

Huatai Securities to list in London in China’s first depositary receipt via UK cross-border investment channel

PUBLISHED : Wednesday, 26 September, 2018, 12:44pm
UPDATED : Wednesday, 26 September, 2018, 1:58pm

Huatai Securities, one of the most profitable brokerages on the mainland, has become the first Chinese company to announce plans to raise funds via the imminent stock connect scheme linking the Shanghai and London exchanges.

The company said it aimed to raise US$500 million by floating up to 825 million global depositary receipts (GDR) under the Shanghai-London stock connect, which is anticipated to launch by the end of this year.

GDRs are part of a company’s shares transferred to a custodian bank before they are bought and traded by investors abroad.

Huatai said in a filing to the Shanghai Stock Exchange on Tuesday evening that the proceeds from the GDR offering would be used to enhance its capital base and bolster overseas expansion.

The announcement came one month after the China Securities Regulatory Commission (CSRC) unveiled rules governing the new cross-border trading system.

“The fundraising plan shows Huatai’s ambitions to internationalise its businesses,” said Zhou Ling, a fund manager with Shanghai Shiva Investment. “With GDRs traded in London, Chinese companies are not only eyeing investors, but also seeking to hone their global images.”

Huatai posted net profits of 9.28 billion yuan (US$1.35 billion) in 2017, the third most profitable brokerage on the mainland, trailing only Citic Securities and Guotai Junan Securities.

It is also listed in Shanghai and Hong Kong.

Is the Shanghai-London stock link a clear sign of genuine market reform in China?

The Shanghai-London stock connect scheme was proposed during a visit by Chinese President Xi Jinping to the UK in October 2015.

Beijing has been striving to gradually open up its capital market before the yuan becomes fully convertible.

The Shanghai-London link will be different from the stock connect between Hong Kong and Shanghai, launched in 2014, and between Hong Kong and Shenzhen, launched in 2016, which let investors trade shares through local brokerages.

The regulators in China and London decided to embark on the depositary receipt system, which gives investors access to only a limited number of shares listed on each others’ markets.

Chinese companies are allowed to raise fresh funds through issuing GDRs in London, while London-listed firms can initially only issue Chinese depositary receipts (CDR) backed by existing shares on the Shanghai exchange.

The link with London is being seen as a symbolic move rather than a substantive measure aimed at inviting more foreign investment participation.

Fang Xinghai, vice-chairman of the CSRC, said in May Beijing was worried about capital outflows, adding that no reform measure would be implemented in China without keeping financial stability in mind.

Huatai’s H shares jumped 2.5 per cent to HK$11.44 (US$1.46) on Wednesday morning and its A shares climbed 2 per cent to 15.45 yuan.