Chinas Huatai To Launch London-Shanghai Connect With $500m Offering

Huatai Securities Co Ltd effectively launched the long-awaited London-Shanghai stock connect on Tuesday with the announcement of plans to raise more than $500 million on the London Stock Exchange (LSE).

Under the Connect, Shanghai-listed companies can raise fresh funds via London’s stock market while British companies can broaden their investor base by selling existing shares in Shanghai.

The launch comes as both China and Britain are entangled in geopolitical uncertainty related to the Sino-U.S. trade war and Brexit respectively.

The scheme was intended to begin late last year with the December listing of Huatai, backed by Alibaba Group Holding Ltd. However, the planned listing was delayed at the last minute.

Huatai, whose yuan-denominated “A-shares” currently trade in Shanghai, said in a Tuesday filing that it would issue 82.5 million Global Depositary Receipts (GDRs), representing 10% of the company’s total share capital.

“The programme offers us access to one of the deepest and most influential capital markets in the world and provides fungibility between the GDRs and the A Shares,” said Zhou Yi, chairman and president of Huatai in the filing to the London Stock Exchange.

In December, people with knowledge of the matter told Reuters that the hold-up at Huatai was partially related to a lack of clarity from Chinese regulators over key technical issues.

One of the people said the issues included how China’s government would treat any currency conversion back into yuan, and whether the stock connect scheme would operate under a currency quota.

Last month, China’s State Administration of Foreign Exchange took steps to resolve such issues when it said it would encourage the use of the yuan in cross-border payments involving depository receipts.

Huatai Securities has a range of businesses, including brokerage, wealth management and investment banking.

The company, which calls itself technology-empowered, introduced Alibaba and Chinese retail conglomerate Suning.Com Co Ltd last year as strategic investors.

Last year, Reuters reported that HSBC was set to become the first Britain-based company to issue Chinese depository receipts under London-Shanghai scheme.

HSBC has tasked its investment banking joint venture in China to work on the issuance, two of the people familiar with t the matter said in October.

China already has existing stock connect schemes, based around trading rather than capital-raising, linking the Hong Kong stock exchange with those in Shanghai and Shenzhen.

Work on the London-Shanghai connect began in 2015, with the LSE hoping it would give Britain a lead in tapping Chinese investors who currently face heavy restrictions when investing overseas.

But as well as uncertainty about China’s capital controls, progress was delayed by Britain’s decision to leave the European Union in 2016.

Brexit has now been delayed until the end of October and the British government is still working to reach an exit agreement with the European Union.

Reuters