Nasdaq courts Chinese; Seeks listings from mainland firms; competition from NYSE, Hong Kong
Samantha Marshall, April 2006
Crain's New York Business
(c) 2006 Crain Communications, Inc. All rights reserved.
When Grentech made its debut on Nasdaq last Wednesday, analysts were expecting good things from another sexy China play. But the initial public offering surprised even the biggest Sino bulls when the tech company issued 6.3 million American depository shares at $18 each, more than 20% higher than anticipated, raising $112.5 million.
GrenTech, based across the border from Hong Kong in Shenzhen, provides support for wireless technology, including devices that enable mobile phone users to make calls from China's remote mountain regions. With a market capitalization of $450 million, the mainland business is typical of dozens of entrepreneurial firms that may seek listings on Nasdaq over the next two years.
``The growth history and potential of these companies never fail to amaze me,'' says Charlotte Crosswell, head of international business development at Nasdaq.
That's why Nasdaq officials are pushing hard to get more mainland companies to list on the Manhattan-based exchange. Over the past year, Nasdaq has hired a Chinese-speaking representative to be on the ground in Beijing, expanded its Asia Pacific management team, and sent several of its top executives eastward to court companies from Xian to Shanghai.
But Nasdaq faces stiff competition from other exchanges, including the Hong Kong Stock Exchange, which gets the lion's share of China's listings, and the New York Stock Exchange, which attracts the biggest and most established companies.
The market capitalization of mainland companies on the NYSE ranges from $1.2 billion to $150 billion. By comparison, capitalization on Nasdaq ranges from $132 million to $1.6 billion.
``For larger companies. the NYSE is definitely the major competitor,'' says Elliot Lutzker, a partner with law firm Phillips Nizer, which represents public companies such as China Mobility Solutions Inc.
In terms of listing volume, however, Nasdaq comes out ahead, with a total of 23 companies, compared with NYSE's 16. Two of the 10 most successful IPOs on Nasdaq in 2005 were Chinese, including Baidu.com, China's own version of Google.
Expensive status symbol
Nasdaq tends to appeal to smaller and midsize entrepreneurial firms, which the Chinese government rarely allows to list on domestic bourses, where even China's largest enterprises must wait years to issue an IPO. A U.S. listing on Nasdaq, where the fee is $150,000, comes much cheaper than an NYSE debut, which costs $250,000.
Fewer companies list on the NYSE because of its more exacting standards, says a spokesman for the exchange, who adds that the NYSE is considering opening an office in Beijing. Its executives have been visiting China and hosting Chinese officials here with increasing regularity over the past few years.
But Nasdaq is confident that it has a healthy pipeline of potential listings--including many companies with much larger revenues than in the past. At least six Internet-related firms hope to raise between $500 million and $1 billion collectively through overseas listings this year, according to a report by the Internet Society of China.
Several Chinese biotech and alternative-energy firms have also publicly stated that they are eyeing U.S. exchanges. And Nasdaq's bulletin board, a quotation service for small stocks, boasts 28 mainland companies, some of which will upgrade to a full-scale Nasdaq listing if they can increase their share values.
A listing on Nasdaq offers these companies a boost in credibility. While there's more prestige in an NYSE IPO, standards of transparency and accounting practices are markedly higher in the United States than in other countries.
Gaining recognition
``the major purpose for a Nasdaq listing is to gain more international recognition,'' Zhang Yi, chief executive of Microport Medical Co., is quoted as saying in an article on emerging markets newswire Interfax. His company, which makes medical devices, is planning to list this year on Nasdaq.
Gaining a listing on Nasdaq can take as long as two years, as Chinese companies conduct due diligence to get themselves ready for their U.S. debut. Doing business off the books is not uncommon in China, for example.
Once they finally do list here, Nasdaq must hold them to the Securities and Exchange Commeet the team's regulatory and disclosure requirements, which can be tough for Chinese firms to meet because of differences in language, culture and corporate practices.
``A lot of work needs to be done prior to listing, but it doesn't end there,'' says David Waldman, an investor relations consultant.
