Education and a strong Board is the key to Chinese companies’ success on the London stock market, according to survey
Corporate Governance issues rank higher than company performance in criteria for investing in Chinese companies listed in London, according to a recent survey of leading City advisers and investors conducted by Financial PR firm Abchurch. Non Executive Director (“NED”) involvement and experience, a consistent track record on corporate governance, and communication with investors were the top three recommended actions that businesses from China considering a London IPO should take. Major calls were also made for greater education of IPO candidate companies from China together with a wish for the highest standards to be maintained by advisers in London.
Abchurch surveyed advisers, fund managers and NEDs, all with China experience, asking for answers to three questions: what are the key reasons as to why the investment community is often reticent about investing in Chinese businesses, what actions could be taken by the London financial market to improve the situation, and what actions should a Chinese business considering listing in London take (along with its advisers) to make a listing more likely of success and investor interest? The questions elicited 332 views which were then analysed for key words and themes.
Greater education and guidance for Chinese businesses coming to London was the lead call as to what the City can do to improve the situation. 65% of respondents said it is the duty of the City to educate Chinese businesses more thoroughly about the City’s expectations of a UK quoted Company. 50% also called upon UK advisers to learn more about Chinese companies’ regions, cultures and relevant market within China rather than just their client’s business in isolation. Addressing these two important issues was considered a catalyst for improving the investment quality of Chinese companies coming to the UK stock market, which 38% of respondents felt needed to happen.
The major piece of advice for Chinese companies considering a London listing revolved around having a strong Board of Directors through NEDs with 50% of respondents referring to this. Experienced NEDs were seen as key to improving corporate governance (38%) equalling improved investor communication. NEDs are called upon to play a wider role in guiding their executive director colleagues.
Answering the question on investment criteria, 62% of respondents cited corporate governance as the lead issue with financial performance a close second. 50% pointed towards cultural and language differences as a reason for not taking up an investment opportunity. Better, more detailed and substantiated financial information was also called for. It was made clear by respondents that the obligation to improve corporate governance and transparency does not lie exclusively with a candidate company, and begins with the advisers and a strong Board which can demonstrate an adherence to recognised standards over a period of years.
Julian Bosdet, Senior Partner at Abchurch said: “The recurring theme gathered from this survey is the importance of corporate governance and the onus is on the City to educate Chinese clients about not only the advantages of a London listing but also what is expected of a company listed in the UK. Investors are looking for success stories in order to restore confidence, and if London can bring at least one large Chinese company to the main market this may well turn the tide.”
John McLean, an experienced UK Director of a number of Chinese businesses, commented: “This initiative has been very insightful in helping to address what is a very important issue for the City. Hopefully the survey findings will help to inspire Chinese companies to come to London as a market and act as a catalyst for many future Chinese transactions. The City is a tremendously important UK export to China and we must take the initiative before the opportunity is lost to other financial centres.”
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Abchurch is the leading investor relations and financial public relations adviser for Chinese companies listed in London. It advises, amongst numerous others, three of the four largest Chinese companies listed in London - China Chaintek United Co. Ltd, Naibu Global International Company plc, and Camkids Group plc. It has been active in China and advising Chinese businesses on London IPOs since 2005. Abchurch’s work includes corporate profile raising including pre-flotation positioning, access to UK capital markets, communications representation for IPOs and other UK stock market listings and aftermarket corporate communications and investor relations.
About the survey
Three open ended questions inviting up to five responses to each question were sent to 50 key people who are involved with Chinese companies listing on the London markets. This elicited 332 views. Those surveyed included senior Corporate Financiers, Analysts, Lawyers and Accountants from key City firms as well as Non Executive Directors currently serving on the boards of Chinese plcs, and other advisors with significant experience in bringing Chinese companies to the London markets. The answers from the respondents were analysed and grouped according to key words and sentiment.
Key investment criteria
Corporate governance issues were marginally ahead of market performance in terms of investment criteria. This was closely followed by concerns over cultural and language differences. Other significant concerns included the perceived lack of communication with London investors.
What should London do?
The overwhelming majority of respondents believe that London and its advisers should take the initiative and educate Chinese companies about what is expected of them when they seek investment from the London markets. Respondents also felt that better knowledge of Chinese regions, culture and diversity of markets would help to ensure that the listing process is a success for both investors and the company. Finding good quality companies to list on the London markets was mentioned by 38% of respondents.
What should Companies considering a Listing in London do?
There was a wider range of advice to Chinese companies, with the most frequent being the importance of having an experienced Board and also English speakers at a Board and Management level. Strong corporate governance, communication with investors, and greater transparency all ranked highly.
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