London Markets China-Based Companies Should Consider For Listing Securities

• Published date: 07 July 2020
• Subject Matter: Corporate/Commercial Law, Corporate and Company Law, Corporate Governance, Securities
• Law Firm: Cooley LLP
• Author: Mr David Boles and Claire Keast-Butler

The UK offers a range of markets that companies based in the People's Republic of China (PRC) might consider as venues for a primary or secondary listing of their equity securities.

This alert provides an overview of the types of equity securities that might be listed, factors that companies tend to consider when choosing a listing venue and segments of the Official List of the UK Financial Conduct Authority (FCA) and of the markets of the London Stock Exchange (LSE).

For a more detailed comparative analysis of the key eligibility and continuing obligation requirements that PRC incorporated companies must comply with depending on the type of London listing sought, please refer to the appendix.

Types of equity securities

There are currently six PRC incorporated companies listed in London.

Air China, Datang International Power Generation Company and Zhejiang Expressway each have shares admitted to listing on the standard segment of the Official List and to trading on the LSE's main market for listed securities (Main Market).

China Petroleum & Chemical Corporation has global depositary receipts (GDRs) representing its shares admitted to listing on the standard segment of the Official List and to trading on the Main Market.

Huatai Securities and China Pacific Insurance are the only PRC incorporated companies to have GDRs representing their shares admitted to listing on the standard segment of the Official List and to trading on the Shanghai-London Stock Connect (Stock Connect) segment of the Main Market.

No PRC incorporated companies are currently admitted to trading on the LSE's junior market, AIM, but there are a number of PRC incorporated companies that have introduced offshore holding companies, with operations in China, into their group corporate structures and listed the shares in the offshore parent entity in London. Examples include China New Energy with a Channel Islands (Jersey) holding company and shares traded on AIM, and Hutchinson China Meditech with a Cayman Islands holding company and shares traded on AIM.

Mounting pressure from investors and regulatory bodies regarding the need for accounting, corporate governance and tax transparency has meant that the Channel Islands (Jersey and Guernsey, in particular) have continued to strengthen their position as favoured locations for the incorporation of offshore group holding companies listed in London, relative to "sandy beach" jurisdictions such as Bermuda, the British Virgin Islands and the Cayman Islands.

Shares

Shares are capable of being admitted to listing on the premium and standard segments of the Official List and to trading on both the Main Market and AIM.

Only shares of issuers incorporated in the UK, Channel Islands, Isle of Man or Ireland may be eligible for direct electronic settlement through CREST. Shares of issuers incorporated in other jurisdictions may be settled through CREST in the form of depositary interests (DIs), which are legal wrappers that convert into CREST-eligible securities that can be dematerialized and settled electronically when placed around shares of a non-UK, Channel Islands, Isle of Man or Irish incorporated company. The company's registrar, acting as depositary, holds the underlying shares through a custodian and issues DIs representing them. DIs are held on trust by the registrar for their holders. DIs do not affect an investor's economic rights; for example, a DI holder will receive dividends or interest payments and may cast votes at shareholder meetings as if they held shares directly.

Global depositary receipts

GDRs are capable of being admitted to listing on the standard segment of the Official List and to trading on the Main Market. Sovereign-controlled commercial companies alone may list GDRs on the premium segment of the Official List.

GDRs are distinct from DIs. GDRs are securities in their own right and are listed, traded and settled. With DIs, the underlying shares are the listed security; DIs are used to settle trades in CREST.

GDRs are certificates representing a proportion of underlying...