Huatai Securities GDR first to list under Shanghai-London Stock Connect scheme

Author: Karry Lai, Jimmie Franklin | Published: 3 Jul 2019
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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 Securities.

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 stuck in."

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."

Tear sheet

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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