Jun 18, 2019 04:22 AM

Huatai U.K.-China Link Debut May Spur More Cross-Border Listings

Huatai is the first China-based company to offer shares in London in two years. Photo: Bloomberg
Huatai is the first China-based company to offer shares in London in two years. Photo: Bloomberg

(Bloomberg) — The trading debut of the first listing under the Shanghai-London Stock Connect program may spur more cross-border listings in the U.K. at the same time as China faces an escalating trade war with the U.S.

Huatai Securities Co.’s successful London listing and the establishment of Chinese capital flow quotas for the program may prompt more Chinese companies with listed A-shares seeking to tap into international capital to consider following suit, said Shane Zhang, co-head of Asia Pacific investment banking at Morgan Stanley, in an interview. Morgan Stanley is one of the joint global coordinators of Huatai’s offering of global depository receipts.

Capital flow under the program has an initial maximum cross-border quota, including an eastbound aggregate quota of 250 billion yuan ($36 billion) and a westbound aggregate quota of 300 billion yuan, according to a joint statement by the China Securities Regulatory Commission and the U.K. Financial Conduct Authority.

Huatai, the first Chinese company to be listed across London, Hong Kong and Shanghai exchanges, rose as much as 7.1% Monday before paring gains to 3.7% as of 1:24 p.m. in London. The company priced its global depository receipts at $20.50 on Friday, at the lower end of its initial targeted range of between $20 and $24.50.

London Stock Exchange Group Plc is hoping the link between the Shanghai and U.K. bourses will generate more listings after Brexit, while China is betting on expanded global market reach. The program, which missed the original December start, had been in the works since at least 2015, when former Chancellor of the Exchequer George Osborne visited China.

Huatai’s IPO launched with a minimum deal size of $1.2 billion and was upsized to the maximum $1.7 billion because of strong support from investors, according to Magnus Andersson, the co-head of Asia Pacific Equity Capital Markets at Morgan Stanley.

About two-thirds of the offer was taken up by international investors, Andersson said, with the remaining third taken up by Chinese investors, some of whom already know the company from its Shanghai and Hong Kong listings.

There were also a significant number of investors that are able to trade arbitrage spreads between different listings. The London GDRs are priced between the company’s two other listings, coming in about 40% more expensive than shares in Hong Kong but about 24% below where the Shanghai shares are trading.

Chinese issuers have typically favored the U.S. and Hong Kong over the U.K. for listings. Huatai is the first China-based company to offer shares in London in two years. A financial training services provider called Grand Fortune High Grade debuted in London in 2017, raising about 4 million pounds.

JPMorgan, Huatai Financial Holdings and Morgan Stanley were joint global coordinators and joint bookrunners. Credit Suisse Group AG and HSBC Holdings Plc were joint bookrunners.

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