Even the freezing cold of a Beijing winter could not stop Duke Alexander's China visit last December. As the IPO divisional director of Deutsche Boerse AG, Alexander visited China five times in six months, with the aim of helping the first Chinese enterprises in history to launch their IPOs on Deutsche Boerse AG. He revealed that "in the first quarter of 2007, the first Chinese enterprise will trade on the Deutsche Boerse AG."
Deutsche Boerse AG's IPO seminar, held in Beijing, attracted many Chinese entrepreneurs looking into listing their companies in Germany.
The vice president of a Beijing investment company said that his company was considering an IPO through either the London AIM or Deutsche Boerse AG.
"Deutsche Boerse AG's fee for launching an IPO is 20 percent lower than that of AIM, but also involves addressing the requirement that the company must be established in Germany," he said. The businessman said he was still undecided on the final destination of his company's IPO launch.
Why have there been no Chinese IPOs on the Deutsche Boerse AG in the past? Why would a Chinese enterprise want to list on the Deutsche Boerse AG? What strategies has Deutsche Boerse AG implemented to compete with other prestigious global stock exchanges? We explored these questions in an exclusive interview with Alexander.
Why have there been no Chinese IPOs on Deutsche Boerse in the past?
Duke Alexander: Like other global stock exchanges, the Deutsche Boerse AG experienced a stock market bubble in 2001, and in 2003 there was not a single IPO. During this downtime, market conditions were poor, and we chose to focus on internal integration. Over the past two years, the stock market has recovered and the global market conditions have been good. This was especially true in 2005, when many enterprises began trading on the stock market once again. We now wish to attract Chinese enterprises to trade on the Deutsche Boerse AG.
Traditionally, Germans are conventional and like to minimize risk. Although Chinese enterprises began trading overseas over 10 years ago, we wanted to see how others were doing before we began pursuing them ourselves. We now believe that the time for action is upon us.
We understand that you are currently in discussion with several Chinese enterprises regarding their IPOs. Do you have a timetable? When will the first Chinese enterprise launch its IPO on the Deutsche Boerse AG? Can you share with us which industry this enterprise is from?
I cannot comment on a specific timetable, but in the first quarter of 2007, the first Chinese enterprise will trade on the Deutsche Boerse AG. In terms of which industry, since Deutsche Boerse AG is known to accommodate enterprises from the automobile, biotech, chemical, software, nanotechnology, telecommunication, recyclable resources and hi-tech engineering industries, the enterprises in question should be related to at least one of these.
Why should Chinese enterprises want to trade on the Deutsche Boerse AG?
We can see that the future world will include three capital markets: the U.S. market, the European market and the Asian market. Asian businesses used to prefer the U.S. market-the NASDAQ and New York Stock Exchange. However, the cost of an IPO in the United States is quite high and this can be a large burden for small and medium-sized enterprises (SMEs). For this reason, starting from this year, more businesses will launch their IPOs in Europe than in the United States. Our international transaction network platform, Xetra, covers the whole of Europe, which means that trading on the Deutsche Boerse AG enables businesses to connect with investors in most regions of Europe.
At present, the majority of transactions at Deutsche Boerse AG are from outside of Germany; mainly the United States, UK, France and Switzerland. This makes for a more international transaction system. In addition, the business pattern of Deutsche Boerse AG is based not on IPO fees, but on the stocks, the publicly listed companies and the incentives for stock underwriters, to ensure the liquidity of transactions and to generate profits.
Many Chinese companies wish to go global and enhance the international awareness of their brand. They also wish to attract new international investors in order to obtain a higher market value. An IPO launch on the Deutsche Boerse AG will help them to expand their market in Europe, obtain investment partners and create an opportunity for European market entrance at a low cost. These Chinese
companies can also obtain euros which may help them in future merger and acquisitions.
What type of company does Deutsche Boerse AG prefer: private or state-owned, blue-chip or SME?
We welcome all Chinese companies from the above-mentioned industries. Deutsche Boerse AG has three markets: elementary, ordinary and senior, which can meet the different IPO needs of different companies. For SMEs, I suggest the elementary market to ensure a fast IPO process at a low cost; this can be the first step of entering Europe. With the expansion of the company, they can then consider upgrading to other markets. For a blue-chip company, our senior market is a more suitable choice.
What is the positioning of the Deutsche Boerse AG? What are the major trading products?
In addition to the convenient location, the Deutsche Boerse AG provides a leading transaction environment among European stock exchanges. Investors from 50 countries can directly purchase stocks through the Deutsche Boerse AG's unique transaction system, in which adequate cash liquidity is assured. Deutsche Boerse AG also offers advantages in high stock liquidity and low IPO costs.
As a large international stock exchange, Deutsche Boerse AG manages all conventional stock exchange products, such as stocks, options, futures and funds.
Deutsche Boerse AG lags well behind the NASDAQ, the New York Stock Exchange and the London Stock Exchange, in terms of attracting Chinese enterprises. What strategies has Deutsche Boerse AG created to bridge this gap?
Unlike other stock exchanges, we do not wish to fight for Chinese enterprises. Our aim is to selectively choose companies that have business relationships with Germany and wish to establish a reputation in Europe. In addition, the companies should be industry leaders that can find peer companies in the same industry in Europe.
For public listed companies, what other services can Deutsche Boerse AG offer?
An IPO is only the beginning in capital markets. If a business wishes to continue to develop, choosing a low-cost capital market with comprehensive services is very important. Each year, we hold two large conferences, providing opportunities for enterprises to meet with investors. Those are platforms for businesses to obtain more investments, and the services are free of charge. We also organize company delegations to visit New York, London, Tokyo and the Middle East, allowing them to touch base with local investors to meet the demands of further financing.
DISCLAIMER: The information contained herein is based on sources we believe to be reliable, but is provided for informational purposes only, and no representation is made that it is accurate or complete. This briefing should not be construed as legal, tax, investment, financial or other advice, and is not a recommendation, offer or solicitation to
buy or sell any securities whatsoever.
Four Stages to IPO
On the Deutsche Boerse
Stage 1: Planning and preparation
- Choose advisors, such as partners of Deutsche Boerse AG;
- Choose an investment bank;
- Establish legitimate structures within the company;
- Establish internal control and reporting systems;
- Provide documentation requested by the government and the supervisory department;
- Develop IPO strategies;
- Develop operational plans.
Stage 2: Structure design
- Develop an IPO timetable;
- Consider IPO plans;
- Due diligence in finance, operations and legal issues;
- Prepare the prospectus which is in line with European Union regulations.
Stage 3: Realization and marketing
- Prepare events for establishing relationships with investors;
- Pre-marketing to investors and analysts;
l Publish the prospectus which is in line with European Union regulations;
- Publish a research report;
- Apply for stock transaction;
- Prepare for stock trusteeship and settlement.
Stage 4: First-day transaction and ongoing transactions
- Determine the IPO stock price and initiate transactions;
- IPO stock price auction;
- Deutsche Boerse AG organizes an IPO event at the hall of the Frankfurt Stock Exchange; the IPO will be broadcast on TV;
- Trading on the electronic transaction platform, Xetra.