Chinese Companies Turn to Switzerland for Fundraising as Hong Kong’s IPO Market
News Analysis
Chinese A-share companies have started listing in Switzerland, while the Hong Kong Stock Exchange (HKEX) saw a record low funding in IPOs.
Hong Kong’s Weak IPO Market
According to its latest interim results (pdf), in the first half of 2022, the HKEX saw a 27 percent drop in profit and an 18 percent decline in revenue and other incomes compared to the same period last year. Its IPO fundraising plummeted from HK$211.7 billion (around $27.5 billion) to HK$19.7 billion (around $2.6 billion), dropping 91 percent year over year.
With its record weak market sentiment in the first half of 2022, HKEX has fallen out of the global top five in IPO fundraising. In the past 13 years, Hong Kong has been the world’s top IPO venue seven times, and its lowest global ranking was fourth in 2012 and 2021.
The slump in the IPO market has affected HKEX’s performance. According to the 2022 interim results, core business revenue was down 11 percent compared to the first half of 2021. The drop in revenue reflects the “lower trading and clearing fees driven by lower Headline ADT and lower depository fees from e-IPO applications.”
Average daily turnover value (ADT) is calculated by dividing the total value of share trading by the number of trading days during the year, as defined by the World Federation of Exchanges. Headline ADT means ADT traded on the HKEX.
However, according to Chinese state-owned financial news CLS, HKEX continues to be “the top choice for return IPOs amid increasing uncertainty for Chinese companies to be listed in the U.S.”
Chinese Companies List in Switzerland
Meanwhile, four Chinese A-share companies in July issued Global Depository Receipts (GDRs) in Switzerland (also called Swiss GDRs). Since then, more Chinese companies have followed in their footsteps to raise funds overseas.
According to Investopedia, GDR is a certificate issued by a bank representing shares in a foreign stock on two or more global markets.
The four Chinese companies raised $1.6 billion by listing their Swiss GDRs on June 28. The companies are Keda industrial Group, Ningbo Shanshan, GEM, and Gotion High-tech.
“In order for Chinese companies to list GDRs in Switzerland, the existing regulatory framework for GDRs was reviewed, amended, and entered into force on July 25, 2022,” according to SIX Swiss Exchange (SIX).
Nine Chinese companies are currently applying for listing Swiss GDRs, while Joincare Pharmaceutical and Lepu Medical Technology have already received conditional approvals from SIX, Chinese state-owned Securities Daily reported on Aug. 19.
In response to the Swiss GDR trend for Chinese firms, Albert Song, a current affairs commentator and expert on the Chinese financial system, told The Epoch Times that Chinese companies seek overseas financing mainly to raise funds and expand the companies’ foreign influence.
“With the Chinese Communist Party (CCP) controlling foreign exchange reserves, it has become increasingly difficult for Chinese companies to obtain foreign currency to expand…
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