On February 9, 2007, China Securities Journal published an article by Qi Bin, Liu Jie, and Zhang Da of the China Securities Regulatory Commission Research Center, "Analysis of the Competition of Overseas Exchanges for my country's Potential Listing Resources", in which the advantages and disadvantages of overseas listings of Chinese enterprises were analyzed. The analysis is briefly excerpted below.

 

 

The main factors for overseas exchanges to attract Chinese companies to list

 

1. The threshold for listing is low and the financing speed is fast.

 

Overseas exchanges usually have lower listing thresholds, especially overseas ChiNext for small and medium-sized innovative companies. In addition, the issuance of stocks in overseas markets generally adopts the registration system, the application procedure is simple and the cycle is short. For example, Singapore can generally complete the approval process within 4 months, South Korea is 3 months, and Nasdaq is only 2 months. In addition, the refinancing speed of overseas exchanges is also quite fast. For example, Nanjing Hongguo International Holding Company conducted a refinancing three months after its listing in Singapore in 2003, raising 8.95 million Singapore dollars (about 45 million yuan). A large number of innovative companies with good quality and urgent need for financing have not yet met the listing requirements of domestic exchanges, or have to queue up in the approval channel when they need funds to break through the development bottleneck, which seriously restricts their development process. Under the circumstance that the domestic market cannot meet their development needs temporarily, a considerable number of innovative enterprises have to turn to overseas capital markets.

 

2. The market and investors are relatively mature.

 

The overseas capital market is dominated by institutional investors. After a long-term market evolution, a relatively mature investment concept has gradually formed, and mature institutional investors are also more likely to understand the business model of innovative companies. At the same time, there have been many precedents for the successful listing of similar innovative companies overseas. For example, before Baidu, a Chinese search engine company in my country, was listed in the United States, Google, an English search engine company in the United States, had established the main position of search engines in the Internet age with its dazzling performance on Wall Street. Therefore, Baidu's profit model is very easy to achieve. The acceptance of the US market, coupled with its Chinese concept, made Baidu an unprecedented pursuit of international institutional investors on the first day of its listing on Nasdaq. As Baidu’s CFO said: “I chose the US for listing because there is no market that understands Baidu’s business better than the US. If there are similar companies in the capital market, they will be easily accepted by investors. It is easy to send out, and the stock price performance is relatively good.

 

3. The market restraint mechanism helps enterprises to grow

 

The overseas capital market has a good nurturing mechanism for enterprises, especially innovative enterprises. Through overseas listing, Chinese enterprises are supervised by more mature international institutional investors and more standardized market mechanisms, which will greatly improve their own governance structure and management level. great promotion. For example, foreign capital markets have relatively high requirements for continuous information disclosure after companies go public, and maintaining a good relationship with institutional investors for a long time is more important for companies to refinance and achieve long-term development. At the same time, in order for a listed company to gain long-term market recognition, the company must have substantial improvements in its own management level, capital utilization efficiency and corporate development planning. A large number of small and medium-sized and innovative enterprises in my country stand out after being baptized by overseas capital markets. For example, companies such as UT Starcom and Focus Media have grown rapidly after their listing on Nasdaq, enhancing their competitiveness; It has the strength to compete with Yili Group, which is inseparable from the stricter market restraint mechanism of the international capital market.

 

4. International reputation and overseas opportunities

 

Companies listed on overseas exchanges often gain a high reputation and join the ranks of well-known domestic or international companies. At the same time, overseas listing can also bring rich international cooperation resources, attract high-quality investors to improve the credibility of the company itself, and the improvement of international reputation and cooperation opportunities from various aspects provide many companies with opportunities for long-term development . Therefore, brand effect is also an important reason why many companies choose to list on NASDAQ and NYSE. For example, after Wuxi Suntech was listed on the New York Stock Exchange, which is known as the "rich man's club", its brand value was greatly enhanced, which in turn enhanced its ability to expand into the international market.

 

Problems encountered by Chinese companies listing on overseas exchanges

 

1. The issuance cost is high.

 

Chinese companies usually have to pay a higher cost to go public overseas than domestically, which is mainly reflected in the two aspects of stock issue price and issue fee.

 

Since the market of Chinese enterprises is mainly domestic, overseas investors are not familiar enough with Chinese enterprises, so it is difficult for enterprises to issue stocks at a higher price. Generally speaking, the amount of funds raised in domestic IPOs is higher than that in overseas markets, especially overseas GEM markets, and the price-earnings ratio of IPOs is generally about twice that of overseas markets.

 

In terms of the direct cost of the issuance process, the domestic listing of enterprises is much lower than that of overseas listings. The underwriters hired by companies to list overseas are generally large international investment banks with strong strength, high level and good reputation, and their underwriting fees are much higher than domestic underwriters. Moreover, overseas listed companies must hire overseas professionally qualified companies and persons to serve as lawyers and accountants. Therefore, even without considering the impact of other cost differences such as marketing, public relations service consultants, and listing, companies will have to pay higher costs to list overseas than those listed in the mainland.

 

2. High maintenance cost after listing.

 

First of all, in terms of direct maintenance costs, companies have to pay higher follow-up costs such as accountants, lawyers, and exchange annual fees after listing overseas. Taking the annual exchange fee as an example, Hong Kong charges a listed company with an annual fee ranging from 145,000 to 1.19 million Hong Kong dollars, while the Shanghai Stock Exchange only charges 6,000 yuan a year, and the Shenzhen Stock Exchange only charges 6,000 to 30,000 yuan a year. etc. annual fee.

 

Secondly, for most enterprises in my country, while providing a relatively complete restraint mechanism, overseas markets also have huge language, cultural and legal barriers. After some Chinese companies listed overseas, due to their unfamiliarity with the operation of overseas mature capital markets and poor communication with investors, the subsequent market performance was poor, stock prices continued to fall, it was difficult to refinance, and even faced the danger of being delisted. At the same time, due to the problems of poor information communication and language and culture, foreign investors cannot fully understand the investment value of Chinese enterprises, which is not conducive to the establishment of international brands and reputation of Chinese enterprises.

 

In addition, Chinese enterprises are not familiar with the overseas legal system, which not only makes enterprises pay higher lawyer fees, but also faces various litigation risks, such as the "safety door" incident of Lenovo US, the anti-fraud case of Bank of China New York Branch, China Life Insurance, Class action lawsuits involving CDC, KongZhong, NetEase, CAO, and worry-free in the United States... In recent years, with the increase in overseas listings of Chinese companies, more and more cross-border disputes have occurred. Increased maintenance costs after the company goes public. Changes in overseas regulations will also bring additional burdens to enterprises. For example, the Sarbanes-Oxley Act's "improvement of internal control" provisions will make the average cost of establishing an internal control system for large companies listed in the United States exceed $4.6 million in the first year. Relevant experts pointed out that the investment of Chinese companies listed in the United States may be higher. It is estimated that the expenditure of 44 Chinese companies listed in the United States will approach 200 million US dollars.

 

3. The disconnection from the local market will have an impact on the long-term development of some overseas listed companies.

 

Except for some companies whose main business relies on the international market, in the long run, when companies go public overseas, while obtaining the funds needed for corporate development and the cultivation mechanism of mature markets, there will also be a phenomenon of disconnection from the local capital market, which cannot be effective. The synergy of mutual promotion and common development between the local economy and the local economy will have some impact on the company's growth in the local economy. For example, the listing of a company in China will attract more domestic investors to understand and pay attention to it, enhance the company's popularity, and bring additional "advertising effects" and user groups. More importantly, after being listed in China, the company can get financial support from domestic investors who are more familiar with the industry or the company's operating conditions and profit model, and it is easier for investors to communicate with the management team and form external constraints. It provides the conditions for enterprises to be closer to the Chinese economy and to use the local capital market platform to grow and develop. Historically, the 30 constituent companies of the US Dow Jones Index have all relied on the local capital market, established a benign interaction mechanism with the local economy, and continued to develop and grow into world-class companies. In 2006, ICBC's "A+H" issuance model and the gradual return of overseas listed companies have made useful explorations on how we can effectively utilize domestic and overseas markets to achieve the simultaneous development of Chinese enterprises and local capital markets in the future. .

 

Time cost is not the most critical, because the domestic speed is accelerating, and if you go overseas, the domestic review process before the listing of red chips cannot be ignored. Therefore, the biggest problem with domestic IPOs is the lack of stable expectations, that is, the lack of a bottom line on the examination standards of the Issuance Examination Committee.

 

It stands to reason that the companies submitted by the Issuance Department to the Issuance Examination Committee for review are all eligible for issuance, but in most cases, companies other than a few "national teams" still have no clue as to whether they can pass the review. And the drastic changes in the approval rate have made all issuers feel like they are on a "roller coaster". However, there is generally no such problem in overseas listing. The issuer and the sponsor have stable expectations, and the difficulty is not in the review but in the issuance.