Huatai Securities, one of China’s major
brokerages, is the first company in China to be listed across
the London, Hong Kong and Shanghai Stock Exchanges, using the
new Shanghai segment of the London Stock Exchange. The delayed
project was launched on Monday June 17. The IPO aims to raise
$1.5 billion through the sale of global depository receipts
(GDRs) to international investors.
Under the newly launched London-Shanghai Stock Connect
scheme, Shanghai-listed companies can list global depositary
receipts on the London Stock Exchange and access a global
investor base. It also enables large, London-listed, companies
to list depositary receipts on the Shanghai Stock Exchange.
"The Shanghai-London Stock Connect is the first of its kind
to link the Chinese and European markets directly and is a
strategic component of China’s capital markets
reform," said a spokesperson at Huatai Securities. "The
programme offers us access to one of the deepest and most
influential capital markets in the world and provides
fungibility between GDRs and A Shares."
Huatai’s GDR offering is also the largest UK
listing since 2016. The spokesperson said that the London
listing is the next step in their creation of a truly global
business, expanding their international presence and providing
new resources to support their growth strategy.
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Much of the regulation that provided the legal framework for
the transaction, particularly in China, was new and required
careful navigation. "In particular, the China Securities
Regulatory Commission and Shanghai Stock Exchange's rules
governing the Shanghai-London Stock Connect were published for
consultation, then finalised during the course of the
transaction and as such needed to be understood quickly," said
Corey Zhang, counsel at Clifford Chance, which acted for Huatai
The fungibility between the A shares listed in Shanghai and
the GDRs listed in London encourages price correlation. "This
mechanism is intended to allow investors to access both pools
of capital easily and obtain the best price for their
securities," said Zhang. "However, given that the mechanism is
unique, careful thought was required as to how it should be
described and any risks that might arise from it." This close
collaboration between Huatai Securities, the underwriters, law
firms and the relevant regulators, particularly the London and
Shanghai Stock Exchanges.
The different regulatory regimes, time difference and
trading hours across the markets also presented challenges. "As
Huatai Securities was listed on both the Shanghai Stock
Exchange and the Hong Kong Stock Exchange prior to the GDR
listing, we also advised on the appropriate procedures to
enable the company to meet its regulatory obligations across
China, the UK and Hong Kong effectively," said Zhang.
For example, in the UK, inside information is required to be
disclosed as soon as possible after this information is known,
regardless of trading hours, whereas in China and Hong Kong
inside information is generally disclosed outside trading
hours. Zhang added: "In order to facilitate information
disclosure, trading on the Shanghai-London Stock Connect
segment of the London Stock Exchange starts at 9am, rather than
8am (the normal start of trading of the London Stock Exchange).
This provides a brief window for disclosures to be made between
the end of trading on the Shanghai and Hong Kong markets and
the start of trading in London."
Pam Shores, partner at Linklaters, which acted for the
underwriters, said: "There was a great deal of work done with
the clearing systems and the depositaries involved, as well as
educating investors on how the scheme works."
As the first transaction of its kind, stakeholders on all
sides were grappling with unchartered territory. Shores pointed
out that it has taken "an army of people to complete this
transaction, but there was so much good will in the process.
There really was a drive to make this work, and everyone got
Tom Thorne, partner at Linklaters, said: "Inevitably with
cross border work, when you’re doing something for
the first time that involves marrying up regulations and rules
in different countries, it gets complicated. There was a huge
effort to navigate through divergences and find solutions to
issues such as stabilising and settlement, and implement
procedures that worked across both regions."
He pointed out also that, at one level, there was "a
standard IPO taking place, whereby you are preparing a
prospectus and undertaking due diligence." This, however,
contrasted with the fact that "The components in relation to
this were more complicated than usual. They related to things
such as the interaction of local accounting policies."
Clifford Chance advised on English, US and Hong Kong law for
Huatai Securities, while Fangda Partners advised on Chinese
law. Linklaters acted for the underwriters. JP Morgan, Huatai
Financial Holdings and Morgan Stanley acted as joint global
coordinators and joint bookrunners. Credit Suisse and HSBC are
also joint bookrunners.
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