By Caroline Henshaw
Sydney may move a step closer to becoming an international financial hub next month with the launch of a new bourse aimed specifically at attracting Asian companies and capital into Australia.
The Asia Pacific Exchange is scheduled to go live next month, subject to final Australian regulator approval. By the end of the year as many as 10 companies are expected to list on the exchange, which will eventually permit yuan-denominated trading, said George Wang, chief executive of APX’s parent company, AIMS Financial Group.
APX proposes to establish a bridge between China’s growing pool of wealthy private investors and companies in Australia’s booming resources and agricultural industries. It also aims to draw cashed-up Chinese firms looking to bolster their global presence through an Australian listing.
“From a Chinese investor point of view, Australia is a gateway to the Western world,” said Mr. Wang in an interview. “Chinese investors, like all investors, like to participate on platforms they are familiar with and understand, with the same language, companies they know, and ideally the same currency.”
Australia’s exchange market is opening up to competition as part of government plans to turn it into a financial hub similar to London or Hong Kong. Since last year, the country’s main bourse operator, ASX Ltd. (ASX.AU), has faced direct competition from Nomura-backed Chi-X, which says it’s market share is now regularly above 3%.
ASX wouldn’t comment on APX’s planned entry. Instead, it referred to a recent speech by its Chief Executive, Elmer Funke Kupper, in which he acknowledges the likely “substantial” impact of competition on Australia’s equity market, while saying the consequences look “modest” for its overall revenues.
”It will be extremely difficult to set up an exchange that carries sufficient volume to be viable long term,” said Angus Gluskie, Sydney-based managing director of White Funds Management, which owns ASX shares. “From the sound of their target market, it’s unlikely to take away from ASX’s existing clientele.”
Over time, more than 60% of investors on APX’s new bourse are expected to come from Greater China, where the company has a front-end office based in Shenzhen, Mr. Wang said.
Firms making initial public offerings on the privately-owned exchange will be able to list in both China and Australia. Once enough companies are signed up, APX plans to let them list in both Australian dollars and Chinese yuan–in what would be the country’s first exchange to allow dual-currency offerings.
Yuan-denominated trades will initially be cleared in Hong Kong. However, a currency-swap agreement signed this year between the Reserve Bank of Australia and People’s Bank of China means that a legal framework for trades to be cleared domestically in the future already exists, Mr. Wang said.
“It will mean it’s not much different to listing in China,” he added.
The yuan’s growing profile as an international currency received another boost this week with news that Chinese logistics firm Shenzhen Trade Link Supply Chain Management Co. was considering a dual-currency IPO in Hong Kong in the first such transaction to be denominated in both yuan and local dollars.
Mr. Wang said a yuan-denominated listing-and-trading system is likely to appeal both to Chinese investors who want to avoid currency risks and Australian resources companies looking to hedge their dealings with the nation’s biggest trading partner.
Last year, Fortescue Metals Group made its first yuan-denominated transaction in China in a step toward settling iron-ore contracts in the local currency. So far, few Australian companies have followed suit.
Asian firms may also be attracted to Australia’s stringent regulatory environment compared with, say, Hong Kong, where in 2009 investors were spooked by the launch of mainland fabric maker Hontex International Holdings, among other recent IPOs where due diligence was found to be substandard.
APX said it will operate a three-level due diligence system to minimize the risks associated with companies that list on the new exchange. It includes a network of sponsors, including China Development Bank Securities, broker Austock Securities, and the exchange’s own investigative teams, based in China and elsewhere in Asia.
“In the past, second-tier exchanges have tended to attract companies that can’t satisfy ASX listing requirements, carry higher risk, and have less ability to survive,” said White Funds’ Gluskie. “Success would in part depend on successfully capturing the listing of companies which themselves are sufficiently robust.”
ASX’s shares closed up 1.2% at A$29.80 in Sydney trading Thursday, broadly in line with the gain for Australia’s benchmark stock index.
–Yvonne Lee and Prudence Ho in Hong Kong contributed to this article
Source: The Wall Street Journal Blog / Deal Journal Australia