Chinese companies find Swiss listing haven amid U.S. pressure
Chinese companies have found a new foreign listing venue in Switzerland as mounting regulatory pressure from the U.S. forces many to reassess their ties to Wall Street.
Since the new Swiss listing mechanism kicked off five months ago, nine mainland Chinese enterprises have gone public in Zurich raising a total of $3.15 billion, far exceeding the amount raised in the American equity market in 2022.
The latest to list on the Swiss Exchange, or SIX, was Jiangsu Eastern Shenghong, a private chemical product manufacturer, on Wednesday. The company raised $718 million in the Swiss market's largest initial public offering of 2022.
"This is a crucial step in the company's move toward international development," Jiangsu Eastern said in a statement issued following its Swiss listing. The company said it intended to enhance its production capacity and "entice global investors and accumulate capital for global expansion."
Under a "China-Switzerland Stock Connect" that took effect around the end of July, companies traded on the exchanges in either country could choose to seek secondary listings on the other side by issuing global depositary receipts, or GDRs. So far, Chinese companies including lithium battery producers Gotion High-Tech and Sunwoda Electronic, medical device maker Lepu Medical Technology Beijing, and hand tool manufacturer Hangzhou GreatStar Industrial have listed in SIX.
No European-listed companies have used the system to list either in Shanghai or Shenzhen to date.
The Swiss version of the stock connect built upon an arrangement between China and the U.K. that commenced in 2019, but which remains stagnant with only five Chinese listings in London so far. China is also discussing a similar arrangement with Germany.
Ringo Choi, Asia-Pacific IPO leader at EY, told Nikkei Asia that one important reason for Chinese companies' interest in listing on SIX is that Swiss authorities allow them to use China-based auditors.
While U.S. regulators have cracked down on Chinese companies and said they require inspection of Chinese audits for those publicly traded in America, Swiss and Chinese authorities have agreed mutual recognition of their respective accounting rules and supervisory frameworks.
According to research by Nikkei Asia, at least 30 mainland companies traded in Shanghai and Shenzhen have disclosed their intentions to seek a listing on SIX.
Although the imminent risk for some 173 U.S.-listed Chinese companies that faced the threat of being delisted has receded somewhat after the U.S. Public Company Accounting Oversight Board announced in mid-December that its maiden inspection carried out in Hong Kong was successful, Washington is clear on keeping up the heat against Beijing on the audit issue. "Cranking up the pressure now will help hold China's feet to the fire," said Erica Williams, the chair of the PCAOB.
Jane Moir, head of research at the Asian Corporate Governance Association, presumes the U.S. is ready to shift gears against China anytime. "It's quite clear from the statement the U.S. made that it's only good for now," she told Nikkei Asia. If things do not proceed smoothly in the future, the U.S. regulator could "put these companies back on the list and they get delisted."
Under such pressure, more Chinese companies have diverted away from the U.S. Only 16 went public in 2022 compared with 42 the year before, and the total amount of funds raised dropped by 96% to $540 million, according to an estimate by Deloitte.
"The drop in 2022 was mainly because of the U.S.-China relationship," said EY's Choi. While there are Chinese companies still attracted to the U.S. market for its size, liquidity and diversity of investors, he anticipates that the IPO trend "depends on the relationship."
Choi said, "Zurich is more stable and politically neutral," which is probably why the SIX has become appealing to a number of Chinese companies.
Beijing seems to view the rising interest in Swiss listings as an opportunity as well. Fang Xinghai, vice-chairman in charge of international affairs at the China Securities Regulatory Commission, told a financial forum in Shanghai last month that the regulator fully supports expanding the "healthy development of GDRs" and continues to encourage Chinese companies to seek listings abroad, while hoping to attract foreign enterprises to do the same in China.
Nana Li, Asia-Pacific head of sustainability and ESG at London-based Impax Asset Management, said Swiss or any other European markets could not be a substitute for New York or Nasdaq. "But they are also giving pressure to the U.S. to make concessions," Li said.