Europeans look for China listings

Representatives from European stock exchanges out in force on last day of Chinese Finance Summit in Beijing.
The last day of the 2006 China Finance Summit in Beijing saw an interesting divergence between government optimism about the national stockmarket and on-the-ground moves by key local players to avoid them.

Thus, although the morning was devoted to much back-slapping on the recent improvements in the domestic A-share market, the subsequent session on insurance was more downbeat. Insurance managers from Sino Life and Taikang Life complained about the volatile nature of the domestic markets.

And in stark contrast to the official optimism about the domestic A-share market, the afternoon session was devoted to the possibilities of Chinese firms listing abroad.

Fresh to Asia were representatives from Euronext and Deutsche Boerse, who along with representatives from Nasdaq, the Alternative Investment Market in London and the Hong Kong and Singapore stock exchanges had come along to tout for business with the members of the corporate sector gathered at the conference.

Euronext is Europe's first cross-border exchange organisation, and was formed from the merger of the Amsterdam, Brussels and Paris exchanges. In 2005, Euronext hosted what was then the biggest IPO of the year, when EDF, a French energy compay , raised Ç7 billion. Currently, no Chinese companies are listed on Euronext. The admission fee is Ç10,000.

Deutsche BoerseÆs chairman, Alexander Graf von Preysing, then introduced his organisationÆs novel business model, whereby listings fees are very low, and the exchange receives fees based on transaction volumes. This is noteworthy, since such a structure closely aligns the exchangeÆs interests with those of the listees. The German bourse achieves its low cost structure based on what von Preysing says are cutting edge electronic trading techniques which keep costs down to a minimum.

ôEase of trading increases liquidity and decreases the cost of capital, ô he notes.

Deutsche Boerse is the only exchange in the world that covers the entire value chain, including equity and derivatives, banking, settlement and custody, IT and market data and anlytics. On a revenues and EBITDA basis, Deutsche Boerse ranks top globally, according to the International Centre for Corporate Strategy and Development, a consultancy which produces research on stock exchanges. It also has the lowest listing cost (as low as Ç5000) and the fastest admission in the world. The company posted revenues of almost Ç2 billion in 2005, on profit margins of almost 30%.

The European presence was clearly unexpected for most Chinese entrepreneurs, who generally think about listing in Hong Kong, Singapore, the US or London. But despite Deutsche BoerseÆs somewhat nationalistic sounding name, von Preysing said it was misleading.

ôWe have actually thought about changing the name. We are not a German stockmarket anymore, and are branching out all over Europe,ö he says. Europe has 23 stock markets, which von Preysing believes is far too many. ôGiven we are living in the European Union, it would seem a good idea to rationalise the number of stock markets,ö he says, although he refused to comment on the recent bid by Deutsche for the London Stock Exchange.

From the Chinese point of view, both Euronext and Deutsche Boerse would appear a bit too Eurocentric. However, both von Preysing and Eric Wenngren of Euronext emphasised that investor demand for exposure to Chinese issuers is growing. Deutsche Boerse currently has three exchange traded funds with exposure to a basket of Chinese stocks. Although no Chinese companies have their primary listing on Deutsche Boerse, 213 Greater China counters can be traded via the funds - of which 95 are from China and 118 from Hong Kong.

However, it will be a while before listing on the mainland European stock exchanges become acceptable to Chinese issuers. ôI donÆt know anything about European countries apart from London, and I doubt they know anything about us, ô says one local entrepreneur.
¬ Haymarket Media Limited. All rights reserved.