Business Maverick

Business Maverick

China pauses GDR approvals, threatening Europe share sale boom

China pauses GDR approvals, threatening Europe share sale boom
Zurich, Switzerland just before dark. Image: Ruth Battell

China’s securities regulator is holding up approvals for new applications to sell global depository receipts, according to people familiar with the situation, potentially choking off a lucrative stream of listings in Europe.

The pause stems in part from concern that a substantial portion of GDR issuance is being taken up by Chinese investors who later convert the securities into shares in their home market to profit from persistent price gaps, the people said. The GDRs, primarily listed in Zurich, have tended to trade at discounts. They become fungible with so-called A-shares in mainland China after 120 days.

The China Securities Regulatory Commission said last month it is considering new rules for the offerings, but has yet to publicly disclose details or comment on the pace of approvals. The regulator is weighing which of the country’s watch dogs will approve the listings, and whether to subject investors participating in the deals to extra scrutiny, the people said, asking not to be identified as the information is private.

Policy makers are concerned that the expected wave of GDR issuance in Zurich could lead to significant downward pressure on China’s stock market if investors convert their holdings into higher-priced A-shares and sell, the people said. 

GDRs in Switzerland have been sold by Chinese firms at discounts of more than 10% below the corresponding A-share price. Jiangsu Eastern Shenghong raised $715-million in a GDR sale on 28 December, a 14.6% discount to the A-share close a few days earlier.

Contemporary Amperex Technology Co is among the firms whose planned GDR offerings are on hold, the people said. The world’s biggest electric vehicle battery maker had been weighing up a share sale in Switzerland to raise as much as $5 billion, Bloomberg News has reported. President Xi Jinping singled out the company in a speech last week, expressing “both joy and worry” about its status as the top ranked cell maker, and the sector’s rapid growth, according to state media.

Deliberations are ongoing and the CSRC could decide to lift the pause, the people said. Representatives for CATL and CSRC did not immediately respond to requests for comment.

The Shanghai-London Stock Connect cross-border listing program was launched in 2019 and expanded last year to link Zurich and Frankfurt with Shanghai and Shenzhen. The enlarged program promised to open up a channel for overseas fundraising amid geopolitical tensions with the US, the venue such firms had traditionally favoured. 

Chinese companies have raised $4.7 billion in Europe through GDR sales since the program was expanded, according to data compiled by Bloomberg. The CSRC has welcomed foreign firms looking to sell shares in China, though none have listed there to date via the stock connect. BM/DM

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