A growing number of mid-sized companies from China are seeking listings on the Frankfurt stock exchange. But after an initial period of hype, investors have grown more skeptical.
Chinese company Haikui Seafood produces over 100 types of fish and seafood from its base on an island in the province of Fujian, delivering food to buyers in China and around the world. This year, the company decided to go public - in Frankfurt, more than 9,000 kilometers (5,590 miles) west of its headquarters.
"The German stock exchange presents itself in a very attractive way. You can even select Chinese as your language on its homepage," said Alan Gey, CFO of Haikui Seafood. "That lets us see directly which documents are necessary for an initial public offering, how the process works and which banks specialize on China."
In total, 33 Chinese companies are listed on the Frankfurt stock exchange, and ten of them are in the strictly regulated market segment known as Prime Standard. ZhongDe Waste Technology, which specializes in waste disposal facilities, became the first Chinese firm listed in that category in mid-2007.
On May 15, 2012, the mid-sized Haikui Seafood sold its first shares publicly.
Gaining access to European markets is not the chief reason that medium-sized Chinese companies opt for Frankfurt's exchange.
"Chinese stock exchanges make it hard on companies of this size to get noticed and sometimes to get listed at all," said Moritz Schenck, an expert on China at the KPMG Consultancy.
"The exchanges in Shenzhen and Shanghai are strictly regulated in terms of company size. If you aren't big enough, then you have little relevance to those who allow listings to go through," Schenck added.
There are also a great number of Chinese companies vying to get listed. The crowd is so big that it makes it harder for mid-sized firms, regardless of whether they are quality businesses or not, Schenck said.
Haikui's Gey listed Frankfurt's efficient filing process, transparency and clarity as the key reasons why his company decided for Germany's stock exchange.
"Small and mid-sized companies are seen as the driving force of the German economy. There are many investors who understand the demands of such companies as well as their business model," Gey said.
Both Chinese companies and the German stock exchange profits from such listings, said Schenck.
"It simply enhances the company's reputation to be able to point out that it is not just a successful producer in China but that it's also listed on international stock exchanges."
In turn, Frankfurt grows in significance for investors by drawing Chinese companies, Schenck argued.
As the Chinese economy grows in leaps and bounds, simply mentioning China was once enough to pique investors' interest. But they have since grown more cautious, due in part to the fact that the Chinese companies listed in Frankfurt are largely in the red. Pioneer ZhongDe Waste Technology had the biggest issuing volume to date at more than 108 million euros. But since then its stocks have lost 90 percent of their value.
"The first IPOs were tied up with a lot of press, but now it's become a less fruitful area," said Schenck. "Chinese businesses have not developed in a very attractive way. Additionally, there have been a few accounting scandals with the companies listed on foreign stock exchanges."
For example, ZhongDe Waste Technology has delayed the publication of its balance sheets in Germany. Moves like that can undermine investors' trust. Schenck called a lack of communication between investors and company leaders a further sticking point. Interest in investing in anything coming out of the economic roar of China has now dimmed, and Chinese business leaders will have to work harder to win over investors.
While small and mid-sized companies from Asia's rising superpower continue to show interest in Frankfurt, China's biggest companies stay away, preferring the exchanges at Shanghai and Shenzhen: the Chinese exchanges don't keep their national heavyweights waiting.
Author: Reyna Breuer / gsw
Editor: Michael Lawton