Return of Chinese Listings? Overcoming Reputational Fallout

Reports of a fresh wave of Chinese listings are likely to cheer IPO sponsors but elicit a loud groan from investors. Will this time around be different?

The wounds from the recent boom-to-bust history of Chinese listings amid accounting scandals, missed numbers and falling share prices are still raw.

This means Chinese companies will return to very different public markets and they will have to show convincingly that they have changed their ways.

Attention has returned to IPOs amid reports a six-month moratorium on mainland Chinese listings is to end, according to the Xinhua news agency. During this period roughly one-fifth of a backlog of 882 listing candidates was rejected in an attempt to weed out poor performers.

Hong Kong is also poised to ramp up its IPO pipeline after a slow start to the year. The HK$8.1 billion raised in the first quarter left it trailing both Singapore and Thailand. China Galaxy Securities and SinoPec Engineering have been given the nod to list, according to latest reports. And watch out for the blockbuster listing of Alibaba – either in Hong Kong or the US – which could be the biggest of the year.

Whether these listings take place in Hong Kong, Shanghai or any other overseas markets, one thing is for sure – they can expect a much tougher ride than in recent years.

Between 2009-11, the Chinese listing boom helped Hong Kong top global tables of funds raised. Such was the pace of listings, HKEx was likened to a “sausage factory” by Fidelity fund manager Anthony Bolton.

New listing reality

Now investor appetite is a lot more selective. For one, regulators are hovering and increasing the penalties for companies or sponsors that break the rules.

Investors are also much more discerning – new issues will need to come keenly priced and in an easily digestible size.

To stand out in a crowded market, more than ever, companies will need to demonstrate they have a compelling investment story and brand.

This is something that needs to be built up over months or even years. Waiting for a listing approval before scrambling to build a public profile in the news blackout period will not cut it anymore. It could also be costly by suppressing valuations or risking an unsuccessful roadshow.

IPO candidates need to start acting like public companies well ahead of listing. This means they need a structured brand building plan that builds profile and credibility with investors, media and other stakeholders in the run up to listing. Further out, they need to map messaging to company goals and strategy, both to manage expectations and demonstrate high levels of corporate
governance and transparency.

Aspiring listing candidates, their sponsor banks and even private equity owners need to accept that the baggage of corporate China’s recent history cannot be swept away overnight.

China has some excellent and well-run companies – but there was collective reputational damage from recent scandals – fairly or not. To put this right means putting communications to the fore.

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