Switzerland helps China Inc satisfy its itch for overseas listings

Lithium battery producer Gotion High-Tech is one of the companies that have listed on the Swiss exchange. © Keystone / Anthony Anex

Since the door was opened for Chinese companies to list their shares in Switzerland last year, even the head of the Swiss bourse has been surprised at how popular the programme has proved to be.

This content was published on February 17, 2023 minutes
Kenji Awase, Nikkei Asia chief business correspondent

Nine companies have gone public in Zurich since the end of July, raising a total of $3.2 billion (CHF2.98 million) — far exceeding the total amount Chinese companies raised in the US in all of 2022.

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“I have to say I was a bit overwhelmed by how many and how fast this was going,” Jos Dijsselhof, chief executive of the Swiss Exchange (SIX), told Nikkei Asia in a recent interview. He was all the more surprised given that it was such a gloomy year for initial public offerings, with the global total value falling 71% from 2021 to $179.7 billion, according to S&P Global Market Intelligence. The number of IPOs nearly halved to 1,671.

Dijsselhof said he was expecting a “slow burn” but instead saw “Chinese companies go against the wind”.

The listings were made possible by the China-Switzerland Stock Connect, a programme that allows companies traded on exchanges in either country to seek secondary listings on the other side by issuing global depositary receipts. The speed of the uptake underscores just how eager Chinese companies are to list overseas, even as their ability to do so in the US comes under pressure.

Dijsselhof said there were strong incentives for Chinese companies to list abroad. “Not only [to raise] capital, but to increase visibility of the companies in Europe and the rest of the world,” he said.

But the implementation of the stock connect programme also coincided with an increase in tensions between the US and China over access to listed companies’ financial audits. Washington has demanded the ability to review audit records, while Beijing resisted on national security grounds.

Amid this wrangling, Switzerland emerged with open arms.

Under the terms of the stock connect arrangement, the Swiss government and SIX have agreed to fully recognise Chinese accounting and auditing principles, thereby avoiding potential tussles over access to company books. The cross-listing scheme also enables companies to raise money in stable currencies — either Swiss francs or the greenback — while Switzerland’s status as a permanently neutral country provides added reassurance for Chinese companies compared with markets more closely aligned with the US.

Although Dijsselhof avoided direct reference to bilateral tensions, he acknowledged that “the neutral nature of Switzerland is definitely helping” attract Chinese companies. For comparison, a similar stock connect arrangement between China and the UK has been in place since 2019, but so far only five Chinese companies have used it to list in London. China is preparing a similar arrangement with Germany, but that has yet to get off the ground.

Swiss and Chinese bourses signed an initial memorandum of understanding to consider co-operation in 2015, building on two landmark intergovernmental agreements on free trade and currency swaps signed in the preceding years. Dijsselhof said both governments had “started to get more involved” in the past year and a half or so. “I think the push from the governments on both sides have accelerated” the process leading to the stock connect programme, he said.

Nicolas Wang, senior equity adviser at Swiss private bank UBP in Hong Kong, told Nikkei Asia that mutual recognition of accounting rules and audit regulations had made Zurich a popular dual-listing venue for Chinese companies, as it “enables fast listings and relatively low transaction fees”. Being publicly tradeable in Switzerland could “also help Chinese companies develop business in European markets”.

Others see geopolitics as a bigger motivator.

Grace Tam, managing director and chief investment adviser at BNP Wealth Management in Hong Kong, said Chinese companies’ growing interest in listing on SIX had “more to do with the US-China issue”.

While delisting risks in the US decreased “significantly” after American auditors said they were given satisfactory access to certain companies’ audits in December, she believes Switzerland offers the stability that the US market lacks. “Many companies, worried about the flip-flops of US-China tensions, might think Europe offers more stability,” she said.

A number of Chinese tech names have listed in Zurich, including lithium battery producers Gotion High-Tech and Sunwoda Electronic, medical device maker Lepu Medical Technology Beijing, and hand tool manufacturer Hangzhou GreatStar Industrial. According to research by Nikkei Asia, nearly 40 mainland companies were in the listing pipeline as of Thursday, including image sensor manufacturer Will Semiconductor and industrial automation provider Zhejiang Supcon Technology.

Contemporary Amperex Technology — known as CATL, the world’s largest lithium-ion battery maker — is reportedly preparing a Swiss listing that could raise more than $5 billion. A company spokesperson told Nikkei Asia on February 2 that it had “no comment at this moment”.

But ease of listing has not translated to robust trade. Post-IPO trading in some Chinese companies has been extremely thin or non-existent.

“From a trading perspective, I think there’s still room for improvement,” Dijsselhof said. The lack of liquidity, he said, comes partly from “fear of the unknown” from investors’ perspective. The exchange has been looking for ways to increase visibility, such as hosting investor days featuring Chinese companies.

Frank Bi, a Hong Kong-based corporate partner at Ashurst specialising in helping Chinese companies go public overseas, said many of his clients are aware that liquidity in Switzerland may be low. But Switzerland’s “politically neutral” status still makes it an attractive venue for those wanting to list abroad amid US-China tensions.

Another major question revolves around the scrutiny of Chinese companies looking to list in Zurich, as the stock connect arrangement does not give Swiss authorities the same right to inspect audit papers as American ones have.

Dijsselhof confirmed that there is indeed no clause in the agreement covering this issue, but said he believes both sides “have spent enough time to understand each other’s regime” and that there is “no interest for Chinese companies not to adhere to accounting standards, disclosures and regulatory regimes”.

He acknowledged the risks of Chinese companies’ failing to meet the expected corporate governance standards. “If one company blows up and there’s a fraud . . . it will probably be [the] death of the initiative.”

That is why he is counting on the Chinese government’s oversight to ensure the quality of the companies entering the Swiss market. “They want to make sure there’s no companies in there [which] they might think are suspicious, because everybody wants this to succeed.”

Additional reporting by Echo Wong by Hong Kong

A was first published by Nikkei Asia. ©2023 Nikkei Inc. All rights reserved.

Copyright The Financial Times Limited 2023

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