"The AIM is a high-growth board oriented towards the SMEs," said Zhu. Compared with the NASDAQ and the New York Stock Exchange, the cost to list on the AIM is less, and the listing rules are more flexible. For example, the AIM monitoring system is flexible; there are no performance requirements for the first three years after listing or minimum public holding requirements; and no prior agreement from the shareholders is required for mergers and acquisitions under normal conditions. But, similar to the companies on the main board of the LSE, companies on the AIM must appoint a sponsor recognized by the exchange but independent of the British listing authority or the exchange to examine the listing documents.

In August 2006, Zhejiang Yuhui Solar Energy Co. from east China's Zhejiang Province successfully raised $50 million on the AIM. "Zhejiang Yuhui has very good performances. Its current market value is up to $1.1 billion, or five times its initial value. The company won the 2006 Excellent AIM Enterprise Award, " said Zhu.

Zhu says she is satisfied with the achievements of privately owned Chinese enterprises. But she is quick to point out, "The lack of knowledge of the London market, the inability to communicate with the company's consulting team in English during the listing process, the prolonged time required, and the complexity of the listing process are real problems facing Chinese enterprises desiring to list overseas."

"It is advantageous if the Chinese enterprise has a non-executive director from overseas. It would be better if the CEO or the CFO of the company is familiar with overseas markets and is able to effectively communicate with overseas investors," Zhu advised.

DR advantages

In February 2006, South Korean company Lotte Shopping was simultaneously listed in London and South Korea. It raised $3.5 billion, of which $2.8 billion, or 80 percent, was in the form of depository receipts (DRs) for listing in London. "This was the largest IPO using DRs at the LSE," recalled Zhu. In 2005, the total volume of DR transactions at the LSE was up to $1.2 trillion. Overseas companies raised $27.5 billion by using DRs, $16 billion of which was by Asian companies. Very few Chinese companies have used DRs to list on the LSE, except Sinopec Corp. and Zhejiang Southeast Electric Power Co. Ltd. Sinopec used ADRs (American Depository Receipts) and the stock was not listed directly on the LSE. Zhejiang Southeast Electric Power issued BDRs (British Depository Receipts).

Issuing overseas DRs has been proven to be an effective channel for companies in developing countries entering international financial markets. Currently, of all the securities at the LSE, the ratio of overseas DRs issued by enterprises in South Korea, Taiwan, India and Russia is relatively high.

Zhu pointed out that there are many advantages for Chinese companies to use DR approach to list in London. For instance, DRs are usually issued in U.S. dollar, which is more attractive to international investors and easier to manage for Chinese companies with business overseas in terms of foreign exchange. Issuing DRs can also help Chinese enterprises to establish their international image, expand their international business, increase the popularity of their products, and improve the opportunity for mergers and acquisitions by leveraging the international markets.

"For a Chinese enterprise, using DR to list overseas and upgrading management quality first can reduce the cost of fundraising and increase investor's confidence when the company gets listed on domestic stock market," said Zhu. "Chinese companies can use financial reports based on the Chinese accounting standard to list on London's professional investment market." But she also reminded Chinese enterprises, "Chinese issuers will only use this listing channel when demands from individual investors are substantial."

The LSE is one of the first exchanges in the world to launch DRs. In July 2006, the LSE launched the PSM (Professional Securities Market), which enables companies to raise capital through the issue of specialist securities, such as debt, convertibles and DRs, to professional or institutional investors. Institutional investors can use the accounting standards of their country to list on the LSE by issuing DRs.

(Xinhua Finance)