It doesn't take much to take the unspecified technical glitch that has pushed back the timing of Huatai Securities' global depositary receipt (GDR) offering in London, link it with the cancellation of Xiaomi's Chinese Depositary Listing (CDR) in Shanghai earlier this year as evidence to question China's commitment to opening up its capital markets on multiple fronts via several schemes.
Add in the more restrictive set of rules that impede UK issuers of CDRs via the Shanghai-London stock connect scheme from raising new capital when Chinese issuers of London GDRs can do so. Then factor in delays to the commencement of southbound trading in the Bond Connect market access scheme between China and Hong Kong that prevents Chinese investors trading outbound, while northbound trading – allowing overseas investors to trade in the China Interbank Bond Market – kicked off in July.
In the round, it paints a picture of efforts to forestall full liberalisation, particularly on the equity side as the Shanghai Composite has lost 21.6% of its value year-to-date.
Huatai's GDR had been scheduled to be – and could still be if the glitches are in fact merely technical – the Xiaomi, meanwhile, had been scheduled to be the first overseas company to offer CDRs, as part of its mammoth US$5.4 billion-equivalent IPO that priced in July.
In the end the smartphone maker went for a standard Hong Kong listing, having previously guided to selling around half of the deal via CDRs. The CDR portion was cancelled following reported Chinese regulatory concerns about market-based pricing, valuation and trading performance. At the time, the onshore China angle had created a frisson of excitement; the reversal had put some pressure on underwriters to review the company's valuation in what were already volatile markets.
In the run-up to its GDR process, Huatai chairman and CEO Zhou Yi had excitedly told Reuters: "the programme offers us access to one of the deepest and most influential capital markets in the world. We are pleased to be the first issuer to tap this new market of enormous potential and unprecedented opportunity".
But be careful about drawing any obvious conclusions from the Shanghai-London hitches. The delay might be a technical/operational one. It might just be that markets are so volatile at the moment that the London and Shanghai exchanges simply want to hold off and launch the scheme when things are a little calmer.
In the absence of hard information about the specific technicalities behind the Hautai GDR delay, however, some people are darkly muttering that blame should actually be apportioned to the globally humiliating and truly embarrassing mess that British politicians have shockingly made of Brexit. In which case the narrative around Chinese reticence to truly open up is a case of one plus one equals three.
If, as is quite plausible, Brexit is the immediate cause for the delay, who can blame Chinese authorities and Huatai itself for wanting to avoid having a symbolically important deal screwed up by pricing into market chaos created by shamefully self-obsessed UK politicians' inability to look beyond their own grubby self-interest?
The timing behind the delay looks bang on for a Brexit casualty. Underwriters JP Morgan, Morgan Stanley, Credit Suisse and Hautai itself had launched the Chinese broker's minimum US$500 million capital-raising into pre-marketing, having obtained local regulatory approval for the deal in early December.
They were poised to start book-building when 11th-hour technical issues emerged, just days before the UK parliament was scheduled to vote on Prime Minister Theresa May's shaky Brexit deal – before the vote was of course ignominiously postponed. The deal was scheduled to price days after the original date of the historic vote. If the Brexit deal fails, markets will take it very badly. Chatter suggests the technical delay could push back Huatai's London listing by a month, rendering it 2019 business and at a safe enough distance to avoid any immediate politically-induced market volatility.
Beyond the political element, it's not as if the Shanghai-London stock arrangement is necessarily going to add up to much from a market perspective either. While it's true that some Chinese companies are believed to be looking at the potential benefits of issuing London GDRs and HSBC is expected to list CDRs, the Shanghai-London link not a cross-exchange trading arrangement.
Even if it were, the UK-China time difference would render that rather pointless. And it's not as if the London link is going to give institutional investors unique access to China stocks either, given they can already trade onshore equities via Hong Kong, Shanghai and Shenzhen Stock Connect or via existing schemes such as QFII or RQFII.
In the circumstances, the fact that consumer electronics and home appliances company Qingdao Haier got the inaugural D-Share offering away in Germany in late October with its 278 million euro IPO on the China Europe International Exchange joint venture between the Shanghai Stock Exchange, Deutsche Börse Group and China Financial Futures Exchange will only play up the Brexit theme.
