Tuesday 9 June 2015

Asian Companies Listing on AIM

In the past few decades, the Chinese economy has experienced phenomenal growth. And while growth had since slowed, it can’t be ignored that in 2014, China became only the second country in history (after America) to achieve economic output in excess of $10 trillion. In fact, even at the current rate of growth, China expected to surpass the US as the world’s largest economy within the next two decades.

It is no wonder then that foreign investors have been looking for ways to benefit from the Chinese success story. And there are plenty of Chinese investment opportunities right here in the UK. SMEs in China have long struggled to secure capital from Chinese banks and that has sent them elsewhere, including London’s AIM market.

But more recently, the reputation of Chinese AIM listed companies has taken a serious hit. It seems that after a few scandals involving Chinese companies, the market has lost faith in all of them. The problem for most Chinese companies therefore seems to be the result of suspicion and rumour. Of course, this is unfair – the Quindell and Tesco scandals have not resulted in investors blacklisting every UK Company.

So the question is, what can Chinese companies do to increase their appeal to UK investors and continue to tap a valuable source of funding through the AIM market? The simple answer: Transparency. After all, the best way to quash suspicions and rumour is by getting the truth out. So for any Chinese companies listing in London, effectively communicating to potential investors from the beginning is critical – and there are plenty of ways to do this.

The suspicions surrounding Chinese companies listing in London are largely fuelled by a literal lack of visibility. So first and foremost, Chinese companies seeking admission to the London Stock Exchange need to bear in mind that potential investors are based abroad and therefore not able to directly observe the day to day operations of the business. Transparency, achieved in part through increased publicity, is therefore key to bolstering investor confidence.

But an effective communications program requires much more than reaching out to the UK national and investor press only briefly ahead of the IPO. Companies need to communicate through wider media outlets and for a longer period of time in the build up to Admission in order to achieve a successful and hopefully oversubscribed fundraising.

One way to do this is by launching Corporate profiling exercises on the home front. Even when targeting a predominantly overseas audience, the relevance of local and trade press coverage should not be underestimated before an IPO.

This is particularly salient for smaller companies. UK journalists are unlikely to have heard of an Asian based SME considering an AIM IPO. If British journalists can discover an existing profile through good trade and local press coverage (and where appropriate a social media profile) as they go online for further information, it will increase the likelihood of positive UK press coverage at IPO.

Local media coverage is also important for investors, as it plays a key role in reassuring their confidence. If a company attempts to promote itself amongst UK investors without an already established press profile, it could make a company’s story, no matter how compelling, harder to believe. And given the current climate of suspicion, that is risk Chinese companies simply can’t take.

Simply put, a proactive communications program is strong evidence of a company’s willingness to honour its commitment to new and existing shareholders. And, perhaps more importantly, increased transparency will help reassure investors and help regain trust of the market. This strategy will not only help Chinese companies: With London seeking to cement its status as the world’s leading financial centre there is simply no way investors here can dismiss companies operating in a country set to become the world’s economic powerhouse.

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