John Thain, the head of the New York Stock Exchange, is in China looking to drum up business.
As well as setting up an office in Beijing, he has been busy pressing the flesh and emitting the sound bites, which included a criticism of pending legislation that would allow the regulator to keep a closer watch over companies seeking to list abroad.
“Companies need access to capital, they need access to global investors … so to restrict them from doing that will hurt their own business, and therefore ultimately hurt the Chinese economy,” Thain said.
While it’s fair to say that Chinese companies need more capital-raising options, this does not necessarily equate to more business for the NYSE, regardless of whether or not restrictions are placed on overseas listings.
The days of the big money Hong Kong-US dual listings by Chinese companies are over. In 1993, Shanghai Petrochemical listed in New York because the target figure (US$343 million was raised) was thought to be beyond the reach of the Hong Kong exchange. With the lion’s share of Industrial and Commercial Bank of China’s world record IPO under its belt, there is now no question that Hong Kong has the necessary pulling power.
When Dealogic combined Hong Kong with the resurgent domestic markets in Shanghai and Shenzhen, it calculated that US$43.1 billion had been raised in the first 10 months of the year. London (LSE and AIM – US$40.5 billion) and New York (NYSE, NASDAQ and the American Stock Exchage – US$38.3 billion) were trailing.
There is no question that Chinese companies still need to go to America in search of funding. China’s 2006 figures are inflated by two bumper IPOs by state banks – while there may be more deals next year, it’s quite possible the cumulative total won’t surpass this year’s – so it would be wrong to say the country is in the process of overtaking London and New York.
Furthermore, there is a fast-growing Chinese private sector up for grabs and investors appreciate the easy exit offered by an overseas IPO.
Stock exchanges have to market themselves to Chinese companies in terms of what they offer that others cannot. For NASDAQ, it is access to tech-focused investors; for London’s AIM market, it is a shepherding system that takes the burden of the paperwork away from what may be an inexperienced management team.
NYSE is no longer in a position to march into China and sell itself on the virtue of being the biggest and best – the “Blue Riband” listing and good corporate governance kudos come with a significant price tag in the form of Sarbanes-Oxley compliance expenses.
The NYSE may have an agreement with the Jiangsu provincial authorities making it the “US stock exchange of choice”. But local companies will need good reason to go abroad when they know they can raise all the money they need at home and in Hong Kong with far smaller compliance hurdles.
NYSE bought the electronic Archipelago stock exchange with a view to catering more for the smaller companies. It remains to be seen whether this will pay off in China.