It seemed like a golden idea when the first Chinese company listed on the Australian Stock Exchange (ASX) back in 1993. But more than 25 years later a spate of delistings suggests Chinese corporate capital-raising Down Under has run its course.
A record six Chinese companies were delisted from the ASX in 2018, following on three de-listings in 2017. Although there are still around 40 Chinese companies listed on the Australian bourse, their shares are rarely traded and many of them struggle with reporting and compliance requirements.
New reports said last year’s delistings were motivated by failure to spend funds as outlined in a prospectus, inability to get funds out of China to pay dividends, and using artificial means to obtain the minimum shareholder spread for admittance to the ASX.
China’s tightening of capital controls aimed at stemming a rush of outflows has made it harder for ASX-listed Chinese firms to pay dividends and even their auditors, the reports said.
While there are still many Chinese companies seeking to list on the ASX, many are rejected because they fail to meet tougher listing requirements, even though the ASX is easier to enter than other regional exchanges, including capital-rich Singapore. Notably, there were no new Chinese listings on the ASX in 2018.
Market sentiment around Chinese listings was bullish back in 1993, when the government-linked Guangdong Corporation made its ASX debut after raising a modest A$7.5 million. That began a flood of ASX-encouraged Chinese listings and bold talk of establishing an “Asian Board” with its own index and stocks that could be traded in real-time across more Asian time zones.
“It is the business development strategy of the exchange to attract Asian, particularly Chinese, companies to make primary listings to capture the economic growth in this part of the world,” then ASX business development chief Peter Marks told media back in 1994.
The reality, however, proved a little more sobering: Many of the small and mid-cap companies which had listed with great fanfare on the bourse struggled to inspire much investor interest after they made their ballyhooed debuts.
The situation wasn’t helped by the demise of Melbourne-based Sino Securities, the principal local arranger and underwriter of Chinese listings.
Headed by Hong Kong-born Richard Li (not to be confused with the son of Li Ka-Shing), Sino was the principle driver of many of the early listings in the 1990s. But Li left the firm and it was delisted itself in 2015.
The last Chinese listing was in 2017, when education provider ReTech entered the ASX after raising A$17 million, all of it without local support.
At the time, ReTech’s co-chairman Calvin Cheng blasted Australian investors in the local media, saying they were “blindly biased” against companies with Chinese mainland origins, despite the promise of 30% dividends. The company’s shares opened at A$0.51 in June 2017 and are at A$0.42 today.
The roll call of names which have listed and then exited include not only the original pioneer, Guangdong Corporation, but other seemingly promising companies such as China Dairy Corporation and China Construction Holdings, both of which delisted in 2015 after almost two decades.
While China Construction was linked to the Chinese Ministry of Construction and includes a Singapore government stake, other Chinese privately-held corporates have struggled to win the confidence of local investors, particularly in a market where smaller companies are widely under-researched.
The most recent de-listing was of wellness and health company Traditional Therapy Clinics, which sold itself to investors as having one of the largest chains of clinics in China.
The company was removed from the ASX in December 2018 after failing to file its half-yearly accounts, and has also attracted the attention of corporate regulator the Australian Securities and Investments Commission (ASIC).
The regulator is taking Traditional Therapy Clinics to court in Australia to have the company wound up, with reports that investor funds may have been improperly diverted.
Not only do Chinese companies have an image problem, with concerns over compliance and governance, but the nature of the market has also changed.
Small retail Australian investors who want exposure to Asia tend to put their money with specialized fund managers or purchase Asian-linked Exchange Traded Securities, an asset class which did not really exist during the first rush of Chinese listings back in the 1990s.
One of the ideas behind attracting Chinese corporates to Australia was to tap the large pension or superannuation funds that were seeking to diversify their portfolios.
The Chinese firms which listed in Australia, however, were too small to get the attention of these larger institutions, which have since been able to invest in offshore markets directly.
The ASX has also given up on its China push and is now angling to attract more foreign listings from Europe, Southeast Asia and the US, among others. The US-China trade war will do little to reverse flagging interest in Chinese shares with rising risk premiums.
All of this means that although Australia and China have never been closer economically and commercially, Chinese corporates have struggled to find a welcome home on the ASX.