China Nonferrous Mining Corporation’s (CNMC) IPO and subsequent listing represented the first Africa-based company to list on the Hong Kong Stock Exchange. Lawyers believe it could spark a wave of copycats. Here’s why.
Zambia-based copper production company CNMC, part of the larger state-owned China Nonferrous Metal Mining Group, listed on the Hong Kong Stock Exchange on 29 June. The Hong Kong Exchange did not require a waiver for the listing.
Herbert Smith’s Tom Chau said this was an encouraging development for Africa-based corporates looking to list in Hong Kong. It means an application with an African – or at least Zambian – operation may be able to meet all necessary listing requirements under Hong Kong listing rules, he explained.
However, he warned that mineral issues face additional listing and disclosure requirements under Chapter 18 of Hong Kong’s listing rules.
Deal counsel expect the deal to start a trend of Chinese-owned resources companies listing in Hong Kong.
Norton Rose partner Shaun McRobert, who advised the joint global coordinators, joint bookrunners, joint sponsors and joint lead managers on the deal, said that Hong Kong was gradually becoming a viable alternative to London in the resources space, particularly when there’s a Chinese off-take or a significant Chinese shareholder or investor.
Davis Polk & Wardwell partner Antony Dapiran, who acted for CNMC, agreed that there was an increasing trend of Chinese-owned international businesses looking to go public. “Hong Kong is a natural home market for these companies, with controlling shareholders based primarily in mainland China and the businesses they’ve invested in based all over the world,” he said.
Negotiating new markets
The transaction was, however, subject to a number of issues common in emerging markets. Dapiran said the challenge when dealing with a developing country’s legal regime was often the gap between the laws and their implementation and enforcement.
He warned that what works for a company from a business point of view might not be sufficient to obtain a clean legal opinion from local counsel. Bankers, in-house counsel and private practitioners at IFLR’s inaugural Africa Forum also warned against this.
Both Dapiran and McRobert emphasised the importance of working closely with local counsel to ensure that any risks were addressed by taking rectification measures or disclosed appropriately in the prospectus.
McRobert said the worst thing you can do in Africa is take legal advice from someone who doesn’t meet international standards. He recommended working closely with selected local counsel to achieve these standards.
It is also essential to take politics into account. Deal counsel noted that every African country has political issues, and that it is necessary to explain political risks involved to investors. Resource nationalism is also an issue; many African jurisdictions have highly protective laws governing inbound investments.
In the case of the CNMC IPO, media coverage largely focused on an election and change of government in Zambia in late 2011. Michael Sata, Zambia’s new president, campaigned with a platform against labour abuses by Chinese mining corporations. However, after the election Sata reiterated his support for CNMC and Chinese investment.
Given Sata’s concerns, it is unsurprising that exchanges are looking more deeply at health, safety and environmental concerns. McRobert said that sponsors are also paying greater attention to these issues as part of their ongoing compliance and international assessment procedures.
He advised that sponsors take a proactive approach. “We think going on site is the best way to understand where potential risks might arise,” he said.