SYDNEY – Australian authorities have cleared most of the hurdles which would allow Australia’s newest stock exchange, the Asia Pacific Exchange (APX), to “go live” as early as end-June. APX has been designed to tap into the growth of offshore renminbi – and the appetite of wealthy Chinese investors seeking to invest overseas.
In time, it is hoped that trades on stocks listed on APX can be done in both the Australian dollar and Chinese renminbi.
APX has approached the Australian Securities and Investment Commission for its blessing to create an RMB board. ASIC has approved APX listing rules, but is yet to approve the business rules.
“Australia is the gateway to the western world,” says Geroge Wang, the Chinese-born entrepreneur whose company, AIMS Financial Services, bought APX three years ago.
The timing of the launch is opportune, as the Chinese Government is moving to relax controls in its financial services sector, gradually paving the way for Chinese individuals to invest overseas.
Although the exchange will list small Australian and Asian companies, Wang is optimistic that Chinese companies will provide a rich source of IPOs. He says there is pent-up demand by Chinese companies seeking to list. “In Shenzhen alone, there are potentially 300,000 companies – of which at least 20,000 would qualify to list,” he told ATI.
Both the Shenzhen and Shanghai stock exchanges have long waiting lists of Chinese companies hoping to proceed with IPOs, he adds. APX also hopes to attract companies requiring dual listing, with a secondary listing in Australia. (Recently, Australian authorities ruled that the Chinese-owned Yanzhou Coal, which is taking over Gloucester Coal in Australia, is required to list its Australian operations in Australia.)
Companies committing to initial public offerings, Wang says, will have the opportunity to raise capital both in Australia and China.
APX has signed a Memorandum of Understanding with China Development Bank Securities, a subsidiary of China Development Bank, and a number of other Chinese groups. They will act as corporate advisers, providing financing services, corporate banking and road shows for companies considering listing on APX. Wang expects to secure the first listings towards the end of this year.
“We are talking to five Australian companies with market capitalisation of about AUD100 million each interested in floating,” says Wang. These companies come from the resources, property and services sectors.
AIMS is also talking to Chinese manufacturing companies, and to private equity and venture capital firms which have shown interest.
In the 1990s, a crop of Chinese companies, including a tiny Canada Land (still listed), floated on the Australian Stock Exchange. They were part of the first wave of Chinese companies going offshore – appearing as N shares in New York and as H shares in Hong Kong.
Except for those listed in Hong Kong, and to a lesser extent Singapore, most offshore listings of Chinese companies were not overwhelmingly successful. Wang says the problem boiled down to the quality of work done by business development managers, whose main focus was to get listings.
APX will adopt a more hands-on approach with companies seeking to float. It has established an office in ShenZhen’s new financial services centre of Qianhai. It is one of 15 companies approved by the Shenzhen provincial government to operate there.
(Others approached to operate at Qianhai include Hang Seng Bank, Standard Chartered Bank, HSBC, SF Express, Pricewaterhouse-Coopers and some Hong Kong companies which have signed contracts with the Qianhai Authority to provide services. Qianhai is located close to the Hong Kong border.)
Wang says APX will undertake a lot more due diligence on Chinese companies before listing, to ensure that they should be more successful than those listed earlier on the London or New York exchanges. “The difference is that we are familiar with the Chinese system, and we are building a team in China who will do the initial vetting before they come before the APX listing committee,” says Wang.
With his group having close links to China, Wang expects APX to leverage from its business connections and network in China, He hopes the exchange will also provide a bridge for Australian companies seeking to reach out to Asian investors – and vice versa for Asian companies.
“We see many wealthy Chinese individuals and groups who want to invest overseas,” he says. “Australia is well-positioned to capture some of this capital, because, apart from being a source of mining, resources, agriculture and hi-technology, Australia stands for transparency, governance and political stability.”
APX was originally set up in 1997 as an “Exempt Market” for companies which listed on the Sydney Futures Exchange – firms such as Becton Property Development and Sigma – before they migrated to the ASX. ASIC issued the exchange with a licence in 2004 – it was then majority-held by the Melbourne-based financial services group, Austock.
AIMS has spent three years developing systems to run the stock exchange, employing former ASX executives, including David Lawrence, now APX General Manager, Market Operations, and IT expert Sharmila Hegde.
Wang says ASIC has approved APX listing rules, and it is now awaiting approval for its business rules, hopefully clearing the way for launch by the end of June.
Jeremy Tobias, APX Director of Business Development, says companies seeking to list must have at least 50 shareholders, a market capitalisation of AUD2 million, and AUD350,000 in working capital. “These listing rules will apply to both Australian and overseas companies,” he says. “They all have to have their accounts audited under AIFRS (Australian International Financial Reporting Standards) for three years prior to listing.”
There will be strict due diligence on each company before listing. Overseas, mainly Chinese companies are expected to work with “sponsors” – leading legal or accounting firms.
Tobias says listed companies will have to follow the same continuous disclosure requirements as ASX-listed enterprises.
David Lawrence says it is planned to settle all APX trades through the ASX subsidiary, Clearing House Electronic Subregister System (CHESS), under T+3 rules (settlement within three days of trade). APX has installed and is testing Trayport, a global system, for its trading system. On the question of liquidity, Wang says this will come as the stocks eventually open to millions of Chinese investors. The strategy is to allow Chinese investors to trade shares in RMB via APX online trading.
APX also plans to have a multilingual approach – starting in English and Chinese – in public announcements.
(AIMS, a diversified non-bank financial services and investment group, was established two decades ago by Wang. It has since originated more than AUD5 billion in prime mortgages and other financial services.www.aims.com.au)