Shanghai-London Stock Connect Sees Its Second IPO

Author:Mr Edwin Northover, James C. Scoville, Vera Losonci and Laurence Hanesworth
Profession:Debevoise & Plimpton
 
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Key takeaways:

China Pacific Insurance is set to become the second Chinese company to list GDRs on the London Stock Exchange under the Shanghai-London Stock Connect scheme. The Stock Connect scheme was launched on 17 June 2019, connecting the London Stock Exchange with the Shanghai Stock Exchange, to enable companies listed on either market to list and trade depositary receipts on the other market. The initiative represents an opportunity for Chinese companies to market themselves to a new pool of investors in London. INTRODUCTION

China Pacific Insurance, the first insurance company to be listed in Shanghai, Hong Kong and London, is set to become the second Chinese company to list global depositary receipts (“GDRs”) on the London Stock Exchange (the “LSE”) under the recently established Shanghai-London Stock Connect (“Stock Connect”) scheme. The listing represents the latest example of a trend for Chinese companies to seek an LSE listing, and thereby obtaining greater access to the international investor pool. Huatai Securities became the first Chinese company to list on the LSE under the Stock Connect scheme in June 2019 with its US$1.54 billion raising through the sale of its GDRs.

Stock Connect is a new scheme launched on 17 June 2019 connecting the LSE with the Shanghai Stock Exchange (the “SSE”) so that companies listed on one market may now issue, list and trade depositary receipts on the other market. The initiative marks a clear relaxation of the Chinese domestic restrictions, allowing non-Chinese companies to trade under Chinese national rules for the first time. Stock Connect has also opened up an opportunity for Chinese companies to reach out to a new pool of investors in London. Currently, there are only five Chinese companies listed on the Main Market of the LSE, including Air China, one of the major Chinese airline companies, oil and gas company China Petroleum & Chemical Corporation, and infrastructure company Zhejiang Expressway.

The scheme is available to “westbound businesses” - namely, companies listed on the SSE which issue GDRs on the relevant segment of the LSE, and to “eastbound businesses” - LSE-listed companies issuing so called “Chinese depositary receipts” (“CDRs”) on the SSE Main Board. CDRs and GDRs are fungible with the securities they represent, being exchanged by a limited number of designated brokers from both markets.

Historically, companies listed on the SSE have struggled to tap into foreign capital...

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