According to sources, China’s securities regulator is delaying the clearance of new requests to offer global depository receipts. It could choke off a lucrative flow of listings in Europe. The suspension is partly due to worries that Chinese investors are absorbing a sizable chunk of GDR issuance.
The investors eventually convert the instruments into shares in their market to make profits from ongoing price discrepancies. The GDRs, predominantly listed in Zurich, have a history of trading at a loss. After 120 days, they are convertible into so-called A-shares on the Chinese mainland.
No Public Announcement on the Possible Approval:
They announced last month that they are considering new regulations for the offerings. But China Securities Regulatory Commission has not yet made any public announcements or updated the approvals timeline. They said the regulator is discussing which of the country’s watchdogs would approve the listings. They also discussed whether to subject investors taking part in the deals to more scrutiny. The people wanted to remain anonymous because the details were confidential.
Policymakers are anxious that the next surge of GDR issuance in Zurich might severely affect China’s stock market if investors convert their holdings into more expensive A-shares and sell.
Chinese companies have offered discounts of more than 10% off the comparable A-share price while selling GDRs in Switzerland. In a GDR sale on December 28, Jiangsu Eastern Shenghong Co. collected $715 million. It represents a 14.6% discount from the A-share close a few days earlier.
GDR Listing on Hold:
Contemporary Amperex Technologies Co. Ltd. is one of the companies whose planned GDR listings have been put on hold. According to Bloomberg News, the world’s largest manufacturer of electric vehicle batteries was considering selling shares in Switzerland to earn up to $5 billion. Last week, President Xi Jinping singled out the business in a speech, expressing “pleasure and alarm” about its position as the leading cell manufacturer and the industry’s explosive expansion.
The sources claimed that the CSRC might decide to end the pause after further deliberations. Requests for comment from CATL and CSRC representatives were delayed.
2019 saw the start of the cross-border listing scheme of the Shanghai-London Stock Connect. And 2017 saw its expansion to include Zurich and Frankfurt in addition to Shanghai and Shenzhen. With geopolitical tensions with the US, the expanded program promised to provide a path for international funding. The enterprises had previously preferred this solution.
Since the program’s expansion, Chinese companies have raised $4.7 billion in Europe through the selling GDRs, as per data gathered by Bloomberg. Although none have yet to list through the stock link to date, the CSRC has encouraged foreign companies wanting to sell shares in China.
