In the wake of the COVID-19 crisis, it has been widely reported that China has been urging domestic companies to look at listing in London, as it aims to revive transactions and strengthen overseas ties.[1] Similarly, it is also likely that with the potential delisting of many Chinese companies on Nasdaq and the New York Stock Exchange (NYSE), we may correspondingly see an increase in the listing of Chinese companies on the London Stock Exchange (LSE). Such migration could be promising for companies seeking a fresh injection of capital in a new market. The U.S. Senate recently passed the Holding Foreign Companies Accountable Act by unanimous consent, which will force Chinese companies to abide by the same accounting rules as U.S. companies listed on the NYSE and Nasdaq. If the act becomes law, Chinese companies that do not abide by the abovementioned rules will have to leave Nasdaq or the NYSE. As such, the LSE is increasingly being viewed as “the next big alternative.[2]”

The Shanghai-London Stock Connect, a scheme between the Shanghai and London stock exchanges, which allows eligible companies listed in each market to issue on the other exchange a depositary receipt that can be traded under local rules in the local time zone, was launched in mid-2019.[3] Specifically, Shanghai-listed A-share companies wishing to be traded in the LSE may do so through the issuance of Global Depositary Receipts (GDRs) while London-listed companies may list on the Shanghai Stock Exchange directly by issuing Chinese Depositary Receipts.[4]

Despite an apparent suspension of the Shanghai-London Stock Connect in early 2020,[5] the China Securities Regulatory Commission (CSRC) has resumed vetting applications by Chinese companies looking to list their depositary receipts in London on the Shanghai-London Stock Connect. This has been viewed mainly as a hedge against moves by the United States to make it harder for Chinese companies to be listed on the NYSE and Nasdaq.[6]

In addition to having to obtain approval from the CSRC, Shanghai Stock Exchange-listed companies seeking a LSE listing pursuant to the Shanghai-London Stock Connect must be approved by the UK Financial Conduct Authority (FCA). The LSE also imposes certain requirements for a Shanghai Stock Exchange-listed company’s admission of GDRs to the Main Market. These include having an A-share listing on the Shanghai Stock Exchange, a minimum market capitalization of 20 billion renminbi, and the publication of a FCA-approved prospectus in accordance with the FCA’s Prospectus Regulation Rules.

The Shanghai-London Stock Connect has opened up an opportunity for Chinese companies to raise foreign capital by tapping into a new pool of investors in London. Currently, there are only a handful of Chinese companies listed on the Main Market of the LSE, including oil and gas company China Petroleum & Chemical Corporation, airline company Air China, electricity company Datang International Power Generation, and infrastructure company Zhejiang Expressway.

Since its formation, the Shanghai-London Stock Connect has seen the listing of Shanghai-listed Huatai Securities, the first issuer to list GDRs under the scheme, raising around US$1.7 billion in June 2019 in London’s largest GDR offering since 2012. Although to date it is the only company to list on Shanghai-London Stock Connect, market confidence in the potential of the Shanghai-London Stock Connect is reflected in the upcoming listing of China Pacific Insurance Group Co., which unveiled its plan in late 2019 to sell GDRs representing as many as 629 million of its Shanghai-listed shares, or 10 percent of its A-share capital. SDIC Power Holdings, a Chinese state-backed energy firm with a market capitalization of approximately 57 billion renminbi in Shanghai, is also looking to raise between US$500 million and US$1 billion from the sale of GDRs on the LSE. According to Reuters, Chinese authorities have also given the nod to China Yangtze Power to begin preparations for a secondary listing on the LSE.[7]

Though promising, it is perhaps worth mentioning that while the U.S.-China tensions give the LSE an edge when it comes to tapping listing resources in China, the LSE still faces competition from other exchanges, such as Hong Kong, which has “overhauled its listings rules to attract more technology companies and is considering amending trading practices such as cutting the period between IPO subscriptions and trading debuts.[8]” Time will tell as to the full extent of the impact the recent developments will have on Nasdaq, the NYSE, and the LSE. If the speculations that Chinese companies are increasingly leaning towards listing on the LSE materialize and become reality, this will be a game changer for the LSE.

[1] Reuters, China urges its firms to list in London in renewed global push: sources, BUS. TIMES (May 19, 2020).
[2] Kenneth Rapoza, China Tries Getting Out Ahead Of NYSE, Nasdaq ‘Delisting’, FORBES (May 19, 2020).
[3] London Stock Exch. Grp., Shanghai-London Stock Connect, How it works.
[4] Lerong Lu & Ningyao Ye, Shanghai-London Stock Connect: Operating Mechanism, Opportunities, and Challenges, BUTTERWORTHS J. OF INT’L BANKING & FIN. L. 34(10), 684–87 (Jul. 10, 2019).
[5] Nisha Gopalan, Shanghai London stock link was always just a pipe dream, STRAITS TIMES (Jan, 4, 2020).
[6] Rapoza, supra note 2.
[7] Reuters, supra note 1.
[8] Zhang Shidong, China to revive IPOs in London to hedge against Wall St’s growing hostility, amid options aplenty for capital-hungry firms, SOUTH CHINA MORNING POST (May 19, 2020).