Chinese Brokerage Huatais London Listing Could Spur More Cross-border IPOs

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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 A-share listed companies looking to tap into international capital to consider the GDR venue and accelerate plans to list in London, Shane Zhang, co-head of Asia Pacific investment banking at Morgan Stanley, said in an interview. Morgan Stanley is one of the joint global co-ordinators of the offering.

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, rose as much as 7.1% on 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 that 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 George Osborne visited China.

The delayed launch comes against the backdrop of an escalating trade war between the U.S. and China and growing fears of Chinese espionage through corporate entities. The U.K. is still weighing whether to allow Huawei Technologies Co. to have a role in next-generation broadband networks, while the U.S. put the Chinese giant on a blacklist last month.

Huatai’s IPO, which launched with a minimum deal size of $1.2 billion, was upsized to the maximum $1.7 billion and priced above the low end of the indicative range due to 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 are also a significant number of investors that are able to trade arbitrage spreads between different listings. The London GDRs are priced in between the company’s other two listings, with receipts coming in about 40% more expensive than those 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 co-ordinators and joint bookrunners. Credit Suisse Group AG and HSBC Holdings Plc were joint bookrunners.

Bloomberg