Emerging markets provide wave of new ASX listings

Emerging Markets Provide Wave of New ASX Listings. Michael Bebly, BRW - Published 29 August 2013

There is certainly enthusiasm on the part of Chinese companies to list in Australia, says Sunbridge non-executive director and Australian Olympic Committee board member Andrew Plympton. Being exchange-quoted gives companies an authority in relationships with people like bankers that they otherwise wouldn’t have. In addition, listing in Australia is faster and can cost up to half of what it would in Singapore or Hong Kong, he says.

An Australian listing also gives these companies the scope to expand outside China. “They’re looking to expand their product globally over next few years,” says Nick Kapes, director of corporate services for brokerage Novus Capital, the sponsoring broker for TTG’s float that is also working with 99 Wuxian and Sunbridge. “That’s their intention. At the end of the day, the ASX provides a springboard to grow.”

The Chinese companies seeking to list in Australia vary by category – it is not the case that listing serves any one industry or sector in particular. Plympton is also on the board of Chinese tractor parts maker Yangzhou JSJ, a $40 million company that he says is going through due diligence to arrive at a valuation ahead of a planned ASX listing.

At the end of the day, the ASX provides a springboard to grow

Sunbridge, is a retailer that seeks to tap the rising middle class that wants to dress in decent casual clothes on weekends but cannot afford Gucci. It sells men’s clothing brands Pandist and Agueseadan, through a chain of 400 stores in China and Hong Kong.

99 Wuxian provides a marketplace for 22-million-odd smartphone users to buy items including hotel and movie tickets, fashion items, food and catering services. These providers will be charged between 5 and 7 per cent of the transaction. It says its unique point is having eight of the country’s 10 largest banks and the three largest telcos on board, which in turn provides a level of confidence about merchants who are allowed to sell via the site.

This raises another question for companies seeking to list: how well and how quickly can Australian securities regulators get their heads around companies that operate solely in China, providing a business that doesn’t exist in Australia? Mobile commerce exists in Australia too, but the much larger Chinese market, which attracts a far greater level of investment in technology, has been developing it commercially for longer and is “best practice”, Benson says.

“In respect to mobile commerce, Australia is somewhat behind the Chinese market,” he says.

Hopefully as time goes on the Australian regulatory authorities ... will be more properly resourced to accommodate strong inbound interest

Further, the time taken to assess these proposed listings – which require consideration of regulations as varied as the Hong Kong companies code, Australian Corporations Law and applicable Chinese regulations – takes too long.

“Hopefully as time goes on the Australian regulatory authorities, in particular the Australian Securities and Investments Commission, will be more properly resourced to accommodate strong inbound interest to participate in our capital markets here,” Benson says.

It is a new area indeed for regulators. Whether coming from China or not, new companies bring a number of considerations with them. One of the ASX’s coming listings, Sino Australia Oil and Gas, is a services provider with no activities in Australia, as it consults on resource projects in China. Another – Shenzhen-based Shenlong – does not even do business in China. It mines copper in the Republic of Congo.

This alone isn’t new. Many junior miners limit themselves to activities in far-flung places. But the growing phenomenon of companies from emerging markets has been occupying the minds of regulators internationally, and an ASIC report earlier this week highlighted the issue of ASX-listed entities that operate in or have significant exposure to emerging markets, where levels of transparency and business practices are lower than in Australia.

Transparency, disclosure

ASIC’s report highlights the need for emerging market issuers to focus on their own internal structure and risk management as well as making honest disclosure to investors about the risks faced by the issuer in its business.

The China-comes-to-Australia listing story is one that will grow – as will the size of the placements. Last year’s TTG listing, which was oversubscribed, only raised about $2.5 million to float less than 1 per cent of the share capital. Sunbridge will only sell and float up to 50 million shares – just 11 per cent of its total share capital – and 99 Wuxian is small.

Future listings will be bigger. Next year Benson says he intends to bring another company, a non-bank financing company that he says it likely to raise about $70 million in its pre-IPO and general financing rounds. Connecting Chinese companies with Australian brokers is a growth business he is aiming to tap.

“We see a very big opportunity there,” he says.

For now, if the attitude and enthusiasm of Australian investors for Chinese companies appears cool, that is not the case for all parts of the community. There are signs that one part of the population is not waiting.Australia’s Chinese community is one group quite willing to bet at least some of its wealth on the growing China story. Benson says Australian Chinese bought between 10 per cent and 15 per cent of the shares in the TTG listing last year and he expects a similar proportion with 99 Wuxian.

We see a very big opportunity there

The growing Chinese community in Australia is increasingly packing a social and financial punch. Figures from the 2011 census show Australia had just under 400,000 people born in China and Hong Kong out of a population of 21.5 million – about 1.8 per cent of the total – and Mandarin overtook Italian as the second language spoken in Australian homes after English (1.6 per cent to Italian’s 1.4 per cent – English was 76.8 per cent).

“Chinese local investors discount the risk of going in to China more than the Australian investors do,” Benson says. “The barrier to entry is a bit lower. But the vast proportion of investment in TTG is held by institutions and (non-Chinese) Australians.”