The scope of GDR (Global Depositary Receipts) issued by A-share listed companies is expanding. On December 3, CITIC Securities announced that its subsidiary CITIC CLSA (UK) has completed the registration of cross-border conversion institutions from the Shanghai and Shenzhen Stock Exchanges to the Frankfurt Stock Exchange. So far, CITIC Securities has become a member of the stock exchanges of the United Kingdom, Switzerland and Germany, and has successfully completed the registration of the GDR cross-border conversion institutions of the above three exchanges by the Shanghai and Shenzhen Stock Exchanges.
Previously, on November 17, 2022, CICC UK, a subsidiary of CICC, also passed the filing of the cross-border conversion agency of the Shanghai and Shenzhen Stock Exchange and the Frankfurt Stock Exchange in Germany. Industry insiders predict that in the future, more securities firms will obtain the registration for the China-Europe Connect business.
The Frankfurt Stock Exchange is one of the world’s most important securities trading centers, second only to the London Stock Exchange in Europe. Its structured product (buying and selling warrants, bull and bear contracts, notes and reverse convertible products, etc.) trading business is Europe’s largest.
In February this year, the China Securities Regulatory Commission issued the “Regulations on the Supervision of the Interconnection Depositary Receipts Business of Domestic and Overseas Stock Exchanges” (hereinafter referred to as the “Regulations on the Interconnection Regulations”), further opening up the interconnection mechanism, and will issue GDR implementation objects Expanded to listed companies on the Shanghai and Shenzhen Stock Exchanges, and expanded to the UK, Switzerland, and Germany.
Many A-share listed companies responded quickly. On the day of the opening of Zhongruitong on July 28, Keda Manufacturing (600499.SH), Shanshan ( 600884.SH ), GEM (002340.SZ), Guoxuan Hi- Tech (002074.SZ) 4 listed companies were listed. Subsequently, nearly 20 listed companies issued announcements planning to issue GDRs on the London Stock Exchange (hereinafter referred to as “LSE”) or the Swiss Exchange (hereinafter referred to as “Swiss Exchange”).
During this period, the Swiss Exchange, the third largest exchange in Europe, was very popular, and most companies planning to issue GDRs chose the Swiss Exchange as the first choice for issuing GDRs. But with the increase of China-EU Connect members, how can listed companies choose between the LSE, SWISS and Frankfurt Exchange? How will the intermediary recommend the distribution place?
Li Hang, co-head of the global equity capital market of CITIC Securities, head of the equity capital market and underwriting department of CLSA, and managing director Li Hang, said in an interview with a reporter from Caijing that the core consideration is the matching degree of the issuer’s industrial cluster effect, “for example There are many new energy companies on the London Stock Exchange, and the companies that choose to issue on the Swiss Exchange generally have business in the European continent.”
Xu Chenming, Director of the Management Committee of CITIC Securities Investment Bank, also believes that industry attributes are an important consideration in choosing a place of issuance. “For example, the consumer, medical, and financial industries are important parts of the Swiss economy and will be favored by issuers in related industries. Advanced manufacturing ( Listed companies in industries such as automobiles and auto parts, machinery and equipment) may tend to issue GDRs in Germany or the UK.” Xu Chenming told Caijing.
GDR will become the normal form of financing
It is understood that the trend of Chinese listed companies to enter the global capital market through the issuance of GDR is in full swing. CITIC Securities has already reserved some projects to issue GDR in Germany. “It is expected that the first order will be launched or issued in the first half of 2023,” said Li Hang express. UBS, another major GDR issuer, is also actively promoting the process of issuing GDRs in Germany.
Zhongruitong, which has been in operation for more than four months, is currently a popular choice for issuance. On December 1, Fang Fortune (300059.SZ), the second largest shareholder of the ChiNext Index, announced that the company’s Swiss Exchange GDR issuance project has been accepted by the China Securities Regulatory Commission.
In addition to Dongfang Fortune, Sanhua Zhikong (002050.SZ), Tianci Materials (002709.SZ), Milkwell (603713.SH), Hangke Technology (688006.SH), Yuyue Medical ( 002223.SZ), Meijin Energy (000723.SZ), Leading Intelligence (300450.SZ), Angel Yeast (600298.SH) and other listed companies issued announcements on the issuance of GDR. Other well-known listed companies include Huayou Cobalt Industry (603799.SH) and Longji Green Energy (601012.SH), etc., and almost all of these companies chose to list on the Swiss Exchange.
The issuance of GDR must meet certain conditions. According to Xu Chenming, listed companies that meet the market value of 20 billion yuan or more, have certain strengths in global competition, have certain overseas business layout or expansion needs, and mature and standardized corporate governance are the current GDR issuance. main characteristics of a person.
Judging from existing cases, Chinese listed companies with large market capitalization and certain competitive advantages in the global manufacturing industry chain are more enthusiastic about promoting GDR. “It is expected that GDR will become a normalized refinancing form and mainstream overseas financing for Chinese listed companies. channels,” Xu Chenming said.
Chinese companies planning to issue GDRs in Europe also need to pay attention to promoting the issuance in a legal and compliant manner. First of all, it is necessary to complete the company’s internal decision-making procedures and the reporting and approval procedures of domestic and foreign regulatory agencies, and pay attention to the compliance of information disclosure.
Secondly, pay attention to several key nodes in the issuance and review process. One is how to promote yourself in the international market. “GDRs are mainly issued to global institutional investors. It is the key factors for a successful issuance to conduct a thorough investigation of potential investors, understand investors’ concerns, and dynamically evaluate the structure of project target investors and subscription intentions to provide certainty for issuance.” Xu Chenming introduced .
In addition, attention should also be paid to the regulatory authorities’ requirements on issuance pricing and fundraising.
In terms of issue price, if a domestic listed company issues depositary receipts overseas with its newly added stocks as the underlying securities, the issue price shall not be lower than 90% of the average closing price of the underlying stock during the 20 trading days prior to the pricing base date after conversion on a pro-rata basis.
In terms of raised funds, the China Securities Regulatory Commission clearly requires that the raised funds be used in principle in the main business, but the funds can be remitted overseas or retained in China according to the purpose.
Li Hang said that listed companies planning to issue GDRs in Europe should also pay attention to exchange risks. He revealed that the current pricing and trading currencies of the three major exchanges are not the same. “According to our communication, the Frankfurt Exchange currently hopes that GDRs issued by Chinese companies can be denominated and traded in euros. The exchanges are different, both exchanges are now denominated and traded in U.S. dollars.”
In terms of how to choose the place of issuance, the above-mentioned two CITIC Securities investment bankers said that there are slight differences in the review of the three exchanges in Europe, but it is not the decisive factor for the company to choose where to issue. The choice of the place of issuance should be based on the company’s own industry Development is the greatest consideration.
Cross-border conversion mechanism is maturing
However, the successful issuance of GDR is only the beginning. The Caijing reporter noted that as of December 3, the first four listed companies that issued GDRs on the Swiss Stock Exchange all issued reminders about the redemption of GDRs.
According to the announcement of the above-mentioned company, in addition to buying and selling GDR through the international order market, qualified investors can also conduct cross-border conversion of GDR and A shares through cross-border conversion institutions.
Cross-border conversion includes the conversion of A shares into GDRs (hereinafter referred to as “generation”), and the conversion of GDRs into A shares (hereinafter referred to as “redemption”). The cross-border conversion institution handles the non-trading transfer of domestic basic securities A shares caused by the generation and redemption of GDR through the special securities account for cross-border conversion opened in China Settlement. That is to say, GDRs issued overseas by listed companies can be converted into A shares and circulated in the domestic securities market.
Kodak Manufacturing announced on December 1 that by the close of the Swiss Stock Exchange on November 29, 2022 (Swiss time), the company’s remaining GDRs have been less than 50% of the actual number of GDRs approved by the China Securities Regulatory Commission. In other words, more than 50% of GDR investors choose to convert GDR into A shares and enter the domestic market for circulation and trading. Many market participants believe that this phenomenon is due to the fact that GDR has not obtained a certain degree of liquidity in overseas markets, and trading is cold, so it is transferred to the domestic market for circulation and trading.
According to the newly opened China-Germany Connect business, Frankfurt Exchange provides two trading platforms: Xetra and Börse Frankfurt. Among them, Xetra is the most advanced securities trading platform in Europe, developed by Deutsche Börse and officially put into use in 2008.
It is understood that the Xetra trading platform can process 1 billion to 1.8 billion quotations per day, and most retail trading orders only need less than one second (milliseconds) to process. So far, 204 participants from 18 countries and regions around the world have traded through Xetra. The trading platform can help solve liquidity problems to a certain extent.
In addition, Xu Chenming believes that the redemption of GDR issuance has limited impact on the overall A-share market. “With the gradual expansion of the GDR issuance scale of the London Stock Exchange and the Swiss Exchange, overseas markets have gradually formed the scale effect of Chinese companies issuing GDR. Overseas transactions are expected to have an upward trend.”
“From the perspective of investor structure, we have also noticed that more and more long-term investors are participating in GDR subscription. They are really optimistic about the company’s intrinsic value and tend to hold it for a long time. As the types of companies issuing GDR become more and more The richer the market, the deeper the participation of long-term investors, the better the liquidity situation.” Xu Chenming believes.
This article is from the WeChat public account “Reading One Flag” (ID: dushuyizhi007) , author: Zhang Yun, editor: Yang Xiuhong, 36 Krypton is authorized to publish.
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