Etude PwC sur les IPO transfrontalières (2012)


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Entre 2002 et 2011, les IPO transfrontalières ont représenté 9 % (1 172) du nombre total d’opérations et 13 % (220 milliards de dollars) du montant total levé dans le monde. Ces dix ans ont été marqués par une augmentation du nombre d’entreprises asiatiques réalisant des IPO transfrontalières. Les entreprises chinoises sont arrivées en tête avec 30 % (347) des IPO transfrontalières et 29 milliards de dollars levés.

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Etude PwC sur les IPO transfrontalières (2012)

  1. 1.‘Equity sans frontières’Trends in cross‑border IPOs and anoutlook for the futureNovember 2012An IPO centre publication,helping companies assesstheir choices
  2. 2. ContentsForeword 4About this report 6Executive summary 8Chapter 1: Trends in cross‑border IPOsCross‑border IPO activity at a regional level 11How trends vary at a country level 12Sector influences in cross‑border IPO activity 15Chapter 2: The drivers of cross‑border IPOsTen drivers of cross‑border IPOs 17How exchanges support these driving factors 21Chapter 3: Our view on future cross‑border IPO trendsTrend 1: IPO activity will continue to evolve 26Trend 2: Emerging market exchanges are developing, but not at a uniform pace 27Trend 3: Competition among exchanges will intensify 27Trend 4: Regulation will continue to influence cross‑border activity 28Trend 5: Macro‑economic factors are stalling the IPO pipeline 29AppendicesAppendix 1: Cross‑border IPO data 2002‑2011 30Appendix 2: Stock exchange fact sheets 36
  3. 3. ForewordWelcome to “Equity sans frontières”, an in‑depth report from PwC andBaker & McKenzie on cross‑border IPO trends. We have worked together tounderstand the landscape and consolidate our opinions with other marketparticipants. This has allowed us to present a view on what we believe areimportant factors for a successful cross‑border IPO and how we expect thelandscape to develop in the short‑to medium‑term.Over the past decade we have witnessed several traditional capital markets environment is‘iconic’ cross‑border deals, such as Prada’s IPO rapidly changing, and there are now financingin Hong Kong, Glencore’s dual listing in London opportunities available to companies that were notand Hong Kong, and Manchester United’s IPO in previously possible. The ‘rise of the East’ in termsNew York. However, our analysis of the trends of IPO activity, both from a capital and issuershows that cross‑border activity is far more perspective, was the principal message; this reportdiversified than these deals might suggest. further investigates this perception.Our research demonstrates that the last ten‑yearcycle (2002 – 2011) contains multiple stories, with What drives cross‑border activity and whatan increasing cross‑border trend and a selection influences the decision on where to list? We haveof stock exchanges at the heart of this activity. interviewed companies, stock exchanges and otherDuring the first half of the period under review, a market participants to understand if there is asignificant rise in cross‑border activity was largely standard answer to the question ‘which market?’driven by companies from emerging markets, in Probably not, as one size never fits all, particularlyparticular Mainland China. However, the market as more alternatives become available. Each listingwas severely impacted following the onset of candidate needs to assess the options based onthe financial crisis in 2008. Despite lingering their unique circumstances – while domesticeffects from the crisis, there is some optimism for markets may increasingly have sufficient depth tothe future. sustain capital requirements for many companies, global companies will continue looking for a moreThe ‘Capital Markets in 2025’ survey published diverse and liquid pool of capital to fufil theirby PwC in December 2011 observed that the growth ambitions. Clifford Tompsett Edward Bibko Head of PwC IPO Centre, PwC Capital Markets Partner, Baker & McKenzie4 Equity sans frontières
  4. 4. PwC 5
  5. 5. About this reportEquity sans frontières is based on (i) analysisof trends in cross‑border IPO activity,(ii) quantitative research among 200corporate executives and investment bankerswith experience in cross‑border listing, and(iii) qualitative research among industryexperts, shaped by PwC, Baker & McKenzie andinsight‑led consultancy Meridian West.Our qualitative research was conducted among a panel comprisingcross‑border issuers, senior executives from stock exchanges, andrepresentatives from the investor community. The research was carried outduring the second and third quarters of 2012.Fact sheets for London, New York, Hong Kong and Singapore summarisingcross‑border activity over the ten year period are available. Research methodology The trends in cross‑border IPOs identified in this report are based on PwC’s analysis of Dealogic and Bloomberg data. For the purpose of this research: • A cross‑border IPO is defined as an IPO where 50% or more of the proceeds are raised on a non‑domestic exchange. • Secondary dual listings are not considered. • Listings from Mainland China into Hong Kong are considered as domestic transactions. • For dual IPOs where information about the division of the proceeds is not available, IPOs taking place in neighbouring exchanges were classified as domestic. • All dual IPOs are allocated to the primary exchange, i.e where 50% or more of the proceeds were raised. • Sectors are identified according to ICB classifications.6 Equity sans frontières
  6. 6. PwC 7
  7. 7. Executive summary At a glance: Ten years of cross‑border IPO activity (2002‑2011) During the ten‑year period analysed: • Cross‑border IPOs account for 9% of the volume and • Stock exchanges in Singapore and Hong Kong are hubs 13% of the value of all IPOs. for the Asia‑Pacific region. • Companies from China have driven cross‑border • Clustering by sector and region drives activity: for activity. Chinese companies have completed the example there are high concentrations of Russian and largest number of international listing (30% of all CIS natural resources companies listing in London, and cross‑border IPOs). Greek shipping companies listing in New York. • London and New York are the most international exchanges, attracting companies from all over the world – 41% of all cross‑border IPOs take place in London and 23% in New York.In this report we have set out to understand the evolution of Emerging market exchangescross‑border IPO activity, explore the rationale for companies are developing at a fast, but notlisting outside their domestic market, and highlight future necessarily uniform, pace Chapter 1 shows that in the contexttrends in cross‑border IPOs. Equity sans frontières explores of cross‑border IPOs, there is nothree questions: homogeneous emerging markets story. Exchanges in emerging markets• Which factors motivate companies to Key findings drawn from this combined are developing their infrastructure, consider a cross‑border listing? analysis include: technology, regulation and governance• How do these factors influence the at different rates. decision on where to list? The global equity landscape has• What impact will these current shifted and continues to evolve • India and Brazil are predominantly market trends have on future Chapter 1 examines the dynamic shift domestic markets with a lower cross‑border IPO activity? in the equity landscape that has taken proportion of cross‑border IPO place in recent years. ‘Capital Markets activity.To answer these questions PwC’s in 2025’, found that the centre of IPO • China is a key originator ofIPO Centre analysed data on global activity is gradually shifting towards cross‑border issuers: betweencross‑border IPO activity from Asia‑Pacific. Our analysis supports that 2002 and 2011, 20% ($29.3bn) of2002‑2011 and conducted in‑depth conclusion: Asia is increasingly a source listings by Chinese companies wereinterviews among issuers with a of both issuers and capital, with the completed overseas.cross‑border listing, stock exchanges, highest level of cross‑border activity. • Russian and CIS issuers have aand representatives from the investor For example, between 2002 and 2011, strong relationship with London:community. In parallel, Baker & there were 171 IPOs from Asia‑Pacific $47.2bn was raised by Russian andMcKenzie’s capital markets team into the Americas, raising $27bn, and CIS issuers in London compared withcommissioned quantitative research 155 IPOs from Asia‑Pacific into EMEA, $8.1bn domestically.among 200 corporate executives and raising $19bn. There were also 239 • Singapore and Hong Kong serve asinvestment bankers with experience in deals within the Asia‑Pacific region regional cross‑border hubs for thecross‑border listing. The research was raising $17bn. Asia‑Pacific region.carried out during the second and thirdquarters of 2012.8 Equity sans frontières
  8. 8. A cross‑border IPO must makestrategic sense for individual issuersThe report explores ten drivers(financial and non‑financial) shapingcross‑border IPO activity ascertainedthrough our research. Access to a widercapital base is by far the most significantreason for listing overseas – cited by94% of participants as a key driver inour quantitative study – but the decisionto list overseas must make strategicsense for the individual issuer.A cross‑border IPO requires greatercommitment from the managementteam than listing in a domestic marketPreparations for a successfulcross‑border IPO needs seriousattention: the impact on managementand compliance can be significant.Chapter 2 highlights guiding principlesin relation to dual IPOs includingdepositary receipts for companiesto enhance the benefit of theircross‑border listing.Leading stock exchanges, such asLondon and New York, will remainimportant listing venues foroverseas issuersThe rise of emerging economies shouldnot be confused with the performance ofemerging market exchanges. It is likelythat London and New York will continueto be attractive destinations, at least inthe short – to medium‑term as emergingmarket exchanges develop.Regulation influences cross‑borderIPO activityChapter 3 considers the factorsimpacting future cross‑border IPOactivity, and finds that changes toregulation and listing rules are keydrivers. In ‘Capital Markets in 2025’,an uncertain regulatory environmentwas cited as the biggest concern toissuers listing on an emerging marketexchange. Regulatory developmentssuch as the Sarbanes‑Oxley Act, theJOBS Act, and changes to Europeanlisting rules have and will continue toinfluence cross‑border IPO activity. PwC 9
  9. 9. Chapter 1Trends in The first decade of the 21st century saw cross‑border IPO activity intensify. Between 2002cross‑border and 2011, cross‑border IPOs accounted for 9%IPOs of the total volume and 13% of the total global IPO proceeds. With an increasingly sophisticated capital markets infrastructure in several emerging markets, there are more opportunities for issuers to raise capital beyond traditional listing centres such as London and New York.Figure 1. Annual cross‑border IPO activity between 2002 and 2011 by volume andvalue of proceeds raised (US $bn)30% 2525%20% 19 18 1715% 14 14 11 1210% 10 10 8 9 7 6 7 7 5% 4 3 3 2 0% 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Proceeds VolumeSource:Dealogic, with PwC analysis. Rounded percentages shown arefor cross‑border IPOs as a proportion of total IPO activity.Figure 1 shows that cross‑borderactivity, as a proportion of total IPO Chris Marschall, Managing Director of Equity Capitalactivity, experienced a steady increase Markets at Asian investment bank CIMB, believes that theup to the middle of the last decade, need for equity remains strong: “We are increasingly livingfollowed by a slump from 2008 to 2009.This was caused by the global economic in a de‑gearing world, in which companies that need capitalcrisis which negatively impacted the are getting less of it from their banks. The need for equityIPO markets. By 2011 cross‑border IPO capital is stronger than ever, and global stock exchangesactivity had begun to recover, with offer an attractive way of reaching the investors that canalmost a fifth (19%) of the global IPO provide that capital.”proceeds raised during the year fromcross‑border transactions.1 1 N.B. 6% of the global proceeds raised in 2011 are accounted for by the cross‑border IPO of mining company Glencore. This partly explains why cross‑border IPO proceeds, as a proportion of total capital10 Equity sans frontières raised, almost trebled from 2010 to 2011 whilst the volume of deals dipped slightly.
  10. 10. Cross‑border IPO activity at a regional levelFigure 2 demonstrates regional trends and cross‑border flows between regions.Figure 2. A snapshot of cross‑border IPO flows by volume and proceeds EMEA 335 cross‑border IPOs ($97bn) within EMEA, of which 147 were within Europe 15 12 n 7b n 5 IP 9b O $1 IP s, $1 O s, s, $7 s, O $1 bn O IP IP 9b 74 6 n 11 - Americas Asia‑Pacific 57 cross‑border 239 cross‑border IPOs ($15bn) within IPOs ($17bn) within Americas, of which 27 Asia‑Pacific, out of occurred between US which 130 companies and Canada 171 IPOs, $27bn listed in Singapore 15 IPOs, $2bn Source: PwC analysis based on Dealogic dataThere was more intra‑regional As a region Asia‑Pacific has the highest The Americas exports moreactivity between 2002 and 2011 than level of inter‑regional activity IPOs to EMEAinter‑regional activity • 326 cross‑border IPOs originated • There were 116 cross‑border IPOs• There were 631 cross‑border IPOs from Asia‑Pacific into EMEA and by companies in the Americas in which the issuer and listing venue the Americas, compared with 239 to European exchanges, with an were located in different countries cross‑border IPOs remaining within average deal size of $170mn within the same region. the region. • This compares with only 15• This compares with 543 in which the • Asian outbound activity was driven cross‑border IPOs to Asia‑Pacific, issuer and exchange were located in by China: 347 cross‑border IPOs with an average deal size of $120mn different regions. originated out of China, 39% went to • 57 cross‑border IPOs took place the USA and 38% went to Singapore. within the region, with 27 of • However, inter‑regional activity these taking place between USAEMEA has the highest proportion of generated higher proceeds; and Canada.intra‑regional IPOs In Asia‑Pacific for example 239• 335 cross‑border IPOs took place cross‑border IPOs within the region between countries within EMEA. raised $17bn (an average of $70mn• This compares with 74 IPOs from per IPO), whereas 326 IPOs into EMEA into the Americas and 12 IPOs EMEA and the Americas raised from EMEA into Asia‑Pacific. $46bn (an average of $140mn). PwC 11
  11. 11. How trends vary at a country levelExploring recent cross‑border IPO Figure 3 shows data on cross‑border place, and bottom grid shows the valueactivity at a regional level is only part IPO activity between the top ten issuing of these deals. For example, 14 Chineseof the global equity markets story. To countries (listed on the left of the grid) issuers undertook an IPO in Germany,explain what has been driving capital and the top ten listing destinations raising $0.7bn.flows it is important to explore trends (listed along the top) during the periodoccurring within individual countries 2002 to 2011. The top grid shows theand stock exchanges. number of cross‑border IPOs takingFigure 3. Cross‑border IPO activity between the top ten issuing countries and the top ten listing destinations (during theperiod 2002 to 2011)Volume of deals – Cross‑border volume Exchanges Australia Canada France Germany Hong Poland Singapore South United United Total Total Total Kong Korea Kingdom States top 10 outbound domestic Australia 5 1 23 1 30 30 745 Canada 1 1 1 24 10 37 40 1,219 China 8 2 8 14 130 8 34 134 338 347 1,358 Germany 1 7 2 10 12 178Issuers Hong Kong 2 2 26 5 11 8 54 55 238 India 3 32 3 38 38 416 Ireland 30 2 32 32 2 Israel 1 17 19 37 37 76 Russia 1 2 45 4 52 54 30 United States 5 17 1 1 1 62 87 99 1,353 Total top 10 14 26 10 16 5 1 161 14 285 183 Total inbound 30 37 18 30 19 20 183 16 480 264 Total domestic 745 1,219 202 178 663 512 268 717 934 1,353Proceeds raised – Cross‑border proceeds (US $bn except average proceeds which are in millions) Exchanges Australia Canada France Germany Hong Kong Poland Singapore South United United Total Total Total Korea Kingdom States top 10 outbound domestic Australia 0.2 0.0 0.5 0.0 0.8 0.8 45.7 Canada 0.0 0.0 0.1 0.8 1.6 2.6 2.7 38.7 China 0.1 0.0 0.0 0.7 5.3 0.3 2.3 20.0 28.9 29.3 332.1 Germany 0.0 0.6 0.9 1.5 2.4 31.1Issuers Hong Kong 0.0 5.9 0.2 0.8 1.4 8.3 8.4 42.0 India 0.6 7.3 0.9 8.8 8.8 36.9 Ireland 4.5 1.2 5.7 5.7 0.9 Israel 0.0 0.6 1.8 2.3 2.3 3.3 Russia 0.4 2.5 39.3 2.4 44.6 44.9 5.8 United States 0.2 1.3 0.0 1.3 0.0 4.4 7.3 16.2 325.0 Total top 10 0.4 1.6 0.0 1,1 3.8 0.1 11.8 0.4 61.2 30.3 Total inbound 0.8 2.3 1.1 3.1 8.7 0.9 14.7 0.5 109.9 56.2 Total domestic 45.7 38.7 38.1 31.1 222.5 19.6 17.9 20.6 80.6 325.0 Average inbound ($mn) 27 62 61 103 458 45 80 31 229 213 Average domestic ($mn) 61 32 189 175 336 38 67 29 86 240Source:PwC analysis with Dealogic data12 Equity sans frontières
  12. 12. According to PwC’s Neil Dhar, the number ofAnalysing the data in this way reveals a American issuers listed in London is partly driven bynumber of important trends about the the attractiveness of AIM: “We have seen a number ofhotspots for cross‑border IPO activity: American issuers listing on AIM, particularly those inLondon is the leading destination the mining and technology sectors, because they haven’tfor cross‑border IPO activity received the right level of attention from US investors.• London attracted 480 cross‑border Their AIM listing is intended to help achieve their IPOs originating from a diverse desired liquidity and valuation. In many cases AIM is range of markets around the world. viewed as a bridge to a future listing on NASDAQ.” This represents 34% of the total IPOs on the London Stock Exchange, and 41% of all cross‑border IPOs. New York follows London as a • Chinese issuers have a significant• Inbound IPOs into London raised centre for cross‑border activity presence in the USA: over half more capital than domestic UK IPOs: (51%) of inbound issuers into the total proceeds from inbound IPOs • New York is also an attractive USA originated from China, raising totalled $109.9bn compared with destination for overseas issuers, but $20bn. Many of these used a so called $80.6bn for domestic IPOs. The has attracted a smaller number of ‘back‑door’ listings route that has since average inbound deal was 2.7 times international issuers than London with been restricted. the size of the average domestic deal. 264 in New York compared with 480 • Despite the attractiveness of its own• Russian issuers have a strong in London. market, there were 99 cross‑border presence in London: 45 Russian • The introduction and enforcement IPOs originating out of the USA (7% of issuers listed in London between of more onerous regulation such as all American IPOs), raising $16.2bn. 2002 and 2011, raising $39.3bn. the Sarbanes‑Oxley Act may have The majority of these transactions The availability of GDRs as a dampened the attractiveness of the were to either the UK (62 issuers, mechanism for Russian issuers listing USA as a venue for cross‑border raising $4.4bn) or to Canada (17 in London has helped to cement issuers. However, the lighter disclosure issuers, raising $1.3bn). This compares this trend. requirements of the JOBS Act may with 1,353 issuers raising $325bn• London is also an attractive venue help attract foreign issuers. domestically. Of the 62 American for US issuers – 62 of which raised issuers listing in London, 59 were AIM $4.4bn – and Indian issuers, 32 of listings. which raised $7.3bn on the London Stock Exchange. “The influx of Chinese companies listing in the US has slowed in recent years as regulations about reverse take overs have tightened,” says PwC’s Neil Dhar. “However, the Chinese regulators have now allowed American oversight of audits for USA‑bound companies based in China. Based on these recent developments, we would expect to see an increase again in the number of Chinese IPO candidates looking to list in the USA.” PwC 13
  13. 13. There is no homogeneous emerging markets story• In India fewer than one in ten (8%) greatest number of cross‑border China (71% of total cross‑border IPOs of Indian IPOs were to exchanges issuers: 347 Chinese issuers listed into Singapore) or Hong Kong (14%). outside the country, although they on an overseas exchange during the • Russian issuers tend to undertake an accounted for 19% of the total previous decade, or 30% of the total IPO in London. Proceeds raised by proceeds raised. The preferred route global cross‑border IPOs. Figure 4 Russian issuers in London ($39.3bn) for Indian issuers is to undertake a shows that China’s role as a source were almost seven times higher domestic IPO followed by a secondary of cross‑border issuers is significant than those raised by Russian issuers listing abroad at a later stage, with the largest number of issuers domestically ($5.8bn). typically into London, New York or peaking at 80 in 2007. In 2002 • Hong Kong issuers raised $8.4bn Luxembourg. no Chinese issuers undertook a through listings on overseas• In Brazil only $0.3bn was raised by cross‑border listing, whereas in 2009 exchanges, more than half of which one overseas issuer, compared with more Chinese issuers undertook ($5.9bn) was raised through IPOs into $69.8bn raised through domestic a cross‑border listing (30) than Singapore. 19 international issuers IPOs. Brazilian issuers raised $3.5bn non‑Chinese issuers (21). listed in Hong Kong, raising $8.7bn. through cross‑border IPOs into the • Singapore is a regional hub for USA, Luxembourg or UK. cross‑border IPOs, the majority of• Mainland China originates the which originate in either MainlandFigure 4. Number of cross‑border IPOs, split between Chinese andnon‑Chinese issuers300250200 185150 178100 132 79 75 58 50 64 80 21 63 15 49 20 26 35 30 30 23 0 11 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Chinese issuers non - Chinese issuersSource:PwC analysis with Dealogic data14 Equity sans frontières
  14. 14. Sector influences on cross‑border Our outlook for the futureIPO activity Cross‑border IPO activity over the past decadeFigure 5 shows a concentration of has been severely affected by the financialcross‑border IPO activity in certain crisis. In recent years successful internationalsectors. From 2007 to 2011 the basicmaterials, oil & gas, and technology transactions have been driven by the size of theindustries experienced a higher than deal and the strength of the companies’ investoraverage level of cross‑border IPO story. Although the IPO market has yet toactivity. In the case of basic materials recover to pre‑crisis levels, there is evidence thatand technology, a smaller concentration investors are backing high quality propositions.of higher value cross‑border IPOs tookplace. As markets pick up we are likelyto see more cross‑border IPOs in thekey technology, oil & gas, and basicmaterials industries.Sector trends are driven by a clusteringeffect whereby issuers list wheresimilar peers have had prior success.For example, there is a concentrationof Greek shipping companies listed inthe USA. As one investment bankerobserves, “There is a very strong focuson London as a potential listing venuefor natural resources companies fromRussia and CIS. This is understandablegiven the weighting of natural resourcescompanies listed there – a lot of thisactivity is driven by the larger miningfunds which are based in London.”Figure 5. Cross‑border IPO activity by sector30% 28%25% 20%20% 18% 15%15% 15%15% 12% 13% 12% 12% 10% 10% 9% 9%10% 7% 7% 8% 8% 9% 5% 5% 0% es gy ns ds ls as ls e es ls ar ria iti ia io lo oo G ic ia C til nc at no st rv er & G U lth du ic na Se at ch il er un O ea M In Fi Te m er m H c su m m si su on Ba co on C le Te C Volume ProceedsSource:PwC analysis based on ICB classifications, using Dealogic data PwC 15
  15. 15. Chapter 2The drivers of The choice of listing venue is an important decision that requires proper consideration. If thecross‑border globalisation of business has meant that whereIPOs a company locates its headquarters has become less relevant, the same cannot be said for where a company decides to list. “Where a company chooses to list has become very important. It is vital to be close to your investors and close to other stakeholders such as suppliers and customers.” Lawrence Wong, Executive Vice President and Head of Listings at Singapore Stock Exchange16 Equity sans frontières
  16. 16. Listing away from their ‘natural market’ poses risks for issuers Edward Bibko, London participation, there is a risk of Capital Markets Partner atQ: Are you seeing a trend of becoming an orphan stock. As a result, Baker & McKenzie, explains companies an issuer could end up with the worst that de‑listing is not always delisting or of both worlds: neither the valuation easily achieved. “What considering 36% nor the liquidity and capital markets many issuers don’t realise,” delisting? platform they are looking for.” he says, “is that de‑listing is not straightforward – In some instances, issuers who list away for example a voluntary from their ‘natural market’ find that de‑listing from London’sRoger Barb, Managing Director of the cost of maintaining their listing Main Market must beEquity Capital Markets at Citigroup, outweighs their anticipated benefits.notes the dangers for any company This may lead to de‑listing. In our approved by a majority oflisting away from its ‘natural market’: quantitative study, 36% of investment shareholders representing“Without a certain level of research bankers say they expect de‑listing to 75 percent of the value ofcoverage, peer group and investor become a trend in the next few years. the company, with less than ten percent voting against the resolution.” The ten drivers of cross‑border IPOsFigure 6. The ten drivers of cross‑border IPOs Our study participants pinpoint ten financial and non‑financial reasons for undertaking a cross‑border IPO, summarised in Figure 6. Businesses 10. 1. that undertake a cross‑border IPO do Domestic Access so because they are seeking specific regulatory to capital benefits that may be easier to achieve barriers in a foreign market, such as greater 9. 2. liquidity or a more knowledgeable Talent Knowledgeable investor base. attraction investor base and retention and analyst community l i n a nci a Fi n a n c i a l 8. 3. Clusters and The right n‑f networks peer‑group o N 7. 4. Prestige and Less credibility sophisticated domestic market 6. 5. Brand Acquisition awareness strategy PwC 17
  17. 17. Financial driversDriver 1: Access to deeper pools of In other instances, the attraction of This has been the experience of Giantcapital and liquidity a cross‑border IPO is the enhanced Interactive Group, a Chinese computer liquidity and trading volumes offered game developer that listed in New YorkQ: What was by an exchange with a greater number in 2007. CFO Jazy Zhang says that the primary of trading partners, investors and a American investors have become more goal of your more sophisticated asset management sophisticated in the way they value cross‑border infrastructure. Established exchanges Chinese companies. “They don’t just listing? 94% such as London and New York have lump all Chinese companies together a more developed equity culture. In into a single group so that if one Chinese 2011, for example, NYSE’s daily trading company has problems, all Chinese volumes averaged $70bn. In less stocks come down,” she says. “Investors developed markets where the investor are gradually learning to look at theThe central driver of most cross‑border base may be largely retail orientated underlying differences to tell ChineseIPOs is to enable issuers to access deeper rather than institutional, stocks can companies apart.”pools of capital. 94% of issuers in our suffer from much more volatile pricing.quantitative study say that their primary Driver 3: Benchmarking against thegoal for undertaking a cross‑border Driver 2: Access to a more right peer groupIPO was to raise capital. In the case knowledgeable investor and Listing away from the domesticof French cosmetics brand L’Occitane, analyst community market can offer the opportunitythe decision to list on the Hong Kong to be benchmarked against a moreStock Exchange was driven by the need Q: Why did you appropriate peer group. This mayto raise funds to grow their business choose to list increase investor appeal because itin Asia. on your chosen means that an issuer’s stock may be exchange? included in specialist funds or indices. “The objective of the IPO 87% Holger Dilling, SVP for Investor was to liberate money Relations at Norwegian shipbuilding which would allow us to company STX OSV, says that the repay bank loans, make company’s decision to list on the further investment in our Listing in a venue with more Singapore Stock Exchange was driven distribution network and knowledgeable investors or analysts by the desire to be located in a maritime to provide the cash to make can have a positive impact on valuation. hub where they would be benchmarked acquisitions,” says Sebastien 87% of the issuers in our quantitative alongside appropriate peers. “There Guinchard, L’Occitane’s study say that they are drawn to a listing are no pure‑play shipyards listed on the Finance Director. venue by its investor base. According Oslo Exchange so there are no direct to one investment banker, listing in comparables for investors,” he says, a market with a more sophisticated “and being listed with the right peers investor base and rigorous analyst in Singapore was important to us for According to Sebastien coverage means that the types of achieving a more favourable valuation.” Guinchard L’Occitane conversations that analysts and experienced high demand investors have with issuers will be among potential investors more centred around the company’s during pre‑IPO road shows opportunities and its underlying equity in Hong Kong: “Because story and much less about mitigating the majority of our recent emerging market risk. growth has been in Asia, and our key objectives were to extend our customer base and our already strong brand awareness in the region, the listing in Hong Kong was expected to raise more capital than if we had chosen to list in Paris.”18 Equity sans frontières
  18. 18. However, listing away from a home market purely to demonstrate a commitment to the region may not always generate investor appeal, particularly where there is no capital being raised to accompany the listing. A representative from Hong Kong Stock Exchange reiterates this point: “The expectations of companies who have done a secondary listing without a fundraising should be fairly limited: the listing is merely a branding and visibility event to extend awareness.” Driver 7: The stamp of credibility Undertaking a cross‑border IPO on an established global listing venue such as London or New York provides a comfort factor for investors when evaluating the appeal of an issuer. Investors expect that the company will have been put through the necessary due diligence and will comply with high corporate governance standards. “The value of this pre‑IPO due diligence has been highlighted by the recent scandal over so‑called ‘back door listings’ on NASDAQ by private Chinese companies, some of whom turned out not to have the business revenues or assets they claimed to have,”Driver 4: Limited domestic market “A company preparing for a significant says Giles Chance, Visiting ProfessorSome issuers in our study feel that M&A transaction may be able to offer at Guanghua School of Management ata domestic IPO would have limited stock as an alternative to cash if they Peking University.their growth potential due to the less are competing with a domestic companysophisticated nature of their domestic in the same market,” says Michael Investors are also wary about the legalmarket. This was the case for one Latin Cole‑Fontayn, Chairman, EMEA and risks of issuers listing in markets withAmerican issuer we interviewed who Chief Executive Office, Depositary less robust contracting and disputeundertook an IPO in the USA because Receipts at BNY Mellon. A listing can resolution processes. “Investors want toof a limited domestic market: “We also be used to reward employees access growth from emerging marketsaimed to increase demand by going to by setting up a variety of stock but not all the legal risks associatedthe American markets. Our domestic incentive scheme. with it,” says Chance, “so having amarket is a certain size, which means fast‑growing emerging market companyit has a totally different investor base. Non‑financial drivers listed on a recognised exchange throughParticipating in the US market has the proper process seems the best ofput us on a world‑class level, which is Driver 6: Raising brand awareness both worlds.”different from being simply a public In recent years, several Western luxurycompany listed in our domestic market.” goods brands have chosen to list in Asia‑Pacific to raise their profile in theDriver 5: A component of an region, notably Prada, Samsonite andacquisition strategy L’Occitane. Sebastien Guinchard ofSome issuers may consider a L’Occitane explains that the decision tocross‑border IPO as the first phase of a list in Hong Kong was driven in part by abroader acquisition or merger strategy; desire to strengthen the brand’s existinga listing can provide greater bargaining presence in the region. “Hong Kongpower during M&A discussions by was top of our destination list,” he says,putting a value on the company. “mainly because our brand image there was already quite high and we wanted to capitalise on that across Asia.” PwC 19
  19. 19. Driver 8: Informal clusters and Driver 10: Regulatory barriers in the The requirement for Chinese companiesnetworks of advisers domestic market to have a sufficient earnings trackIn addition to the valuation benefits of Political or regulatory restrictions may record before listing on their domesticbeing listed with appropriate peers, the mean that it can be difficult, or the time exchange meant that Giant Interactiveclustering of similar companies can also span too long, for issuers to list in their Group had to do their IPO in America,result in informal advisory networks. domestic market. This is particularly where the rules on earnings historyThis is attractive for issuers because it true for Chinese companies looking to were more favourable. “It took usmeans adviser and analyst communities raise equity capital. Giles Chance of only 18 months to develop and launchbuild up greater expertise from working Peking University notes that it may be our first game, but the mandatorywith similar types of companies. politically very difficult for some Chinese requirement for a company to have at companies to list on their domestic least three years of earnings historyHowever, issuers should avoid market. “Until recently, access to the restricted us from being listed in China,”blindly following other companies Chinese equity markets has been almost says CFO Jazy an exchange. “Just because other exclusively reserved for companiescompanies happen to be talking about owned by the Chinese government, ora certain exchange doesn’t necessarily in which the Chinese government has amean that it makes sense to list there,” majority interest,” he observes.says Lawrence Wong of Singapore StockExchange. “If there is no connectivitybetween a company and the investor “The capital market in China is still very muchcommunity, that company will getmarginalised.” Companies therefore controlled by the regulators,” says Cliffordneed to consider how their choice Tompsett of PwC’s Global IPO Centre. “This canof exchange plays with their widerbusiness strategy. lead to unpredictability for Chinese issuers who cannot accurately forecast when an IPO will takeDriver 9: The ability to attract andretain talent place or how much of the anticipated proceeds canChoosing to list on a recognised be realised. For this reason Chinese issuers may, inexchange has added prestige that can some instances, seek a listing destination outsidehelp a company attract and retain thebest talent. Listing on NYSE allows the country.”Chinese‑based Giant Interactive Groupto compete for talent in its domesticmarket. “Being a public company reallyhelps us when we recruit students fromtop universities in China. Once theyhear we are a public company listed inNew York, it really means something tothem,” says CFO Jazy Zhang.20 Equity sans frontières
  20. 20. Figure 7. Top ten listing venues (by volume) for cross‑border IPO activity 2002‑2011How exchanges support thesedriving factors 120 600The most attractive venues for issuersconsidering a cross‑border IPO will be 100 500the ones that offer the most financialand non‑financial benefits. Figure 80 400 Volume Billions7 shows that during the previous 60 300decade, exchanges in the UK and USAdominated cross‑border IPO activity. 40 200The London Stock Exchange was the Proceedsdestination for 41% of all cross‑border 20 100 VolumeIPOs during the period. A premium 110 56 15 2 3 1 1 9 1 0listing in London is particularly 0 0desirable for issuers originating inemerging markets. According to oneRussian issuer interviewed: “Moscowwill undoubtedly develop as a listingvenue, but London will remain a big Source:draw for Russian issuers and investors.” Dealogic, with PwC analysis Amar Budarapu of Baker & McKenzie agrees that the USA markets have a lot to offer overseas issuers considering a cross‑border IPO: “A listing on either the NASDAQ or New York Stock Exchange provides an issuer with access to what remains the world’s deepest and most liquid capital market. With that comes exposure to sophisticated institutional and retail investors.” PwC 21
  21. 21. Figure 8 shows that, as at the end of Vice President and Head of Global2011, New York and London are the Listings at NYSE highlights the factors “Within the last five yearslargest capital markets measured by that make New York an attractive a growing number ofboth total number of foreign issuers destination: “The appeal of the USA forand proceeds raised by cross‑border international issuers is the strength of international companiesIPOs. Their deep capital pools its capital markets system, the depth have selected Hongmake them attractive destinations of institutional markets, the amount of Kong as their listingfor issuers. Scott Cutler, Executive liquidity and the certainty of execution.” destination,” saysFigure 8. Summary of cross‑border activity on four main global exchanges: PwC’s Kennedy Liu.London, New York, Hong Kong and Singapore “This makes sense for companies looking toAt 31 Dec. 2011 London New York Hong Kong Singapore develop their business inTotal number of issuers 2,886 4,988 1,496 773 Asia; natural resourcesTotal market cap ($bn) 3,266 15,641 2,258 598 companies, for example,Total number of foreign issuers 598 817 24 311 are increasingly sellingNo. of IPOs (2002‑2011) 1,414 1,617 682 451Proceeds ($bn) raised by IPOs 191 381 231 33 to China. There are also(2002‑2011) examples of EuropeanNo. of cross‑border IPOs (2002‑2011) 480 264 19 183 and US companies whoProceeds ($bn) raised by 110 56 9 15cross‑border IPOs (2002‑2011) are listing in HongRatio of internationalisation (volume) 34% 16% 3% 41% Kong to demonstrateRatio of internationalisation (proceeds) 58% 15% 4% 45% their commitment toRatio of global attractiveness (volume) 51% 28% 2% 19%Ratio of global attractiveness (proceeds) 58% 29% 5% 8% the region.”Source: PwC data, based on World Federation of Exchanges and Dealogic data; ratio ofinternationalisation is cross‑border IPOs as a proportion of total IPOs in the region; ratio ofglobal attractiveness is cross‑border IPOs as a proportion of global cross‑border IPOs.The emerging market exchanges are catching upThe rise of emerging markets during the around property – how governance attractiveness as a listing destination.last decade as places to do business with is transmitted through the systems in “The BM&FBOVESPA is seen by manyhas not translated into an equivalent a way that links investors to issuers as one of the most successful emergingappetite for listing in emerging markets. and allows them to receive all the market exchanges and regional financialIt is important therefore to make a governance rights. How governance centres,” he says. “Nevertheless, thedistinction between emerging markets rights flow or don’t flow through the NYSE has continued to function as a keyand emerging market exchanges. market infrastructure is critical.” and complimentary listing and tradingLawrence Wong of Singapore Stock venue for Latin American equities thusExchange agrees, “Although emerging There is further progress to be made contributing to the improving marketmarket economies are challenging more before emerging market exchanges quality in the region.” This suggestsdeveloped economies in terms of growth, threaten the dominance of established that many issuers are findings waysnot all emerging market exchanges capital raising centres. Albert Ganyushin of tapping into emerging marketare international and therefore able to of NYSE Euronext believes that the growth without listing on exchanges inchallenge the more established global success of Brazil’s BOVESPA has emerging markets.exchanges.” not been detrimental to New York’sMichael Cole‑Fontayn of BNY Mellonshares his perspective: “Emerging “One key reason that emerging markets are lagging ismarket stock exchanges have had investor trust,” says Edward Bibko of Baker & McKenzie.the luxury of starting with the most “Several of these exchanges have lower corporate governancemodern technology, risk managementand clearing and settlement structure. standards than mature exchanges or, in some cases, despiteHowever, an important area that high standards there is a lack of effective enforcement.”is less developed involves concepts22 Equity sans frontières
  22. 22. At a glance: commonly‑cited reasons for dual IPOs • Mandatory requirements to list in domestic market. • Greater liquidity through multiple investor bases. • Reflects global operations and global supply chain. • Demonstrates a commitment to more than one region. • Development of the DR market has made this a more attractive option.Dual IPOs work best when they enable issuers However, with any dual listing there is a riskto access multiple sources of capital. According of flow‑back, whereby liquidity naturallyto Alastair Walmsley, Head of Primary Markets migrates to what is perceived by investors toat the London Stock Exchange: “Where dual be the primary exchange. Philippe Espinasse,listings work is when a company gains access ex‑investment banker and author of IPO: Ato two different pools of capital and genuinely Global Guide, has seen this happen for somecreates a larger, more diverse investor base companies who have chosen to undertake aas a result. There are significant benefits to secondary listing in Hong Kong: “There havethis, particularly where the initial listing is been a few examples in Hong Kong whereon a market where the international investor some companies have had a secondary listing,community is unable or unwilling to invest.” sometimes without even selling or issuing shares, and as a result liquidity has been very low. If you look at the trading volumes of these companies, there are days when there is literally not a single share exchanged.” PwC 23
  23. 23. Depositary Receipts There has been an increase in the use of quite actively by the ETF (exchange‑traded depositary receipts (DRs) over the last 20 fund) community to enable them to invest years, offering benefits to investors such as efficiently in markets around the world. Figure providing a mechanism for lowering the risk 10 shows that the proportion of cross‑border of alternative trading on local exchanges and IPOs achieved through DRs has increased over providing efficient investment in different the previous decade, from 5% of the total in markets. DRs and DR indices are being used 2002, reaching a high of 30% in 2010. “One of the reasons that DRs have been so attractive in Europe is because of their lower regulatory threshold,” says PwC’s Clifford Tompsett. “This is borne out by the increasing numbers of issuers who have chosen to do a DR listing in Europe since the implementation of the 2005 EU Prospectus Directive and the revised depositary receipts regime.” Figure 10. DRs as a proportion of total cross‑border IPOs 35% 30% 30% 25% 21% 19% 20% 20% 17% 15% 14% 13% GDR as % of cross- 10% border IPOs 10% 30% 5% 5% 4% 0% 21% 20% 17%14% 13% DR as % of cross - border IPOs 10% Growth and innovation in the use of of, say, a Brazilian depositary receipt, or depositary receipts is expected to continue. a Mexican or Chinese depositary receipt.” Michael Cole‑Fontayn of BNY Mellon says, In this way, depositary receipts can also “As markets grow, investors in those countries facilitate complex capital raising, such as the want to be able to invest in US or European dual listing IPO conducted by the Brazilian stocks. Companies will therefore explore investment bank BTG Pactual, using BDRs in making their shares available in the form Brazil and GDRs in the Netherlands. 24 Equity sans frontières
  24. 24. Our view: cross‑border IPOsneed to make strategic sensefor individual issuersMotivations for undertaking across‑border listing can be both financialand non‑financial. In some instancesregulatory restrictions in a domesticmarket necessitates listing overseas;in other cases issuers seek to obtainenhanced benefits, such as access todeeper capital pools. However, thedecision to undertake a cross‑border IPOneeds to be considered as part of a broadercapital markets business strategy. PwC 25
  25. 25. Chapter 3 Our view This chapter explores five trends, summarised in Figure 11, that are likely to shape future patternson future of cross‑border IPO activity. It is important forcross‑border issuers, investors and exchanges to factor these trends into their planning to ensure that theyIPO trends continue to capitalise on opportunities for growth.Figure 11. Five trends that will shape the 1.future of cross‑border IPO activity Activity continues to evolve 5. 2. Macro‑ Stock economics Exchanges are impact IPO developing pipeline Five future trends for cross‑border IPOs 4. 3. Regulation Exchange shapes patterns competition of activity intensifiesTrend 1: IPO activity will continue to evolveQ: Companies based in which Five years ago, China was a country that only attracted foreign type of market investment,” says PwC’s Kennedy Liu. “Today it is very different: are most likely to list on a foreign 61% Chinese companies now represent the biggest contingent of cross‑border issuers going out to find investments. Like Western companies they exchange? are expanding their businesses overseas. We are likely to see this trend intensify as more Chinese companies make foreign investments.The previous decade witnessed the cross‑border IPO. Albert Ganyushin Future IPO candidates will comerise of Asian companies as originators of NYSE Euronext recognises this from beyond the BRIC markets too.of cross‑border IPOs. During the trend: “Fewer ‘old economy’, cyclical Michael Cole‑Fontayn of BNY Mellonsame period listing venues outside of companies – the traditional source of believes a second tier of emergingtraditional global capital centres grew large IPOs – will come from Western market companies will be looking toin attractiveness. countries for the next few years as access global capital pools: “We have the result of a weak macroeconomic seen increased interest coming out ofThe demographic of traditional IPO environment. More of this type of countries such as Vietnam, Cambodia,candidates will evolve. 61% of issuers IPO candidate will come from the big Zambia, Namibia, Mongolia and Saudiin our quantitative study expect emerging markets in Latin America, Arabia. Many of these countries arecompanies in emerging markets to Russia and Asia.” making a real effort to develop theirbe the most likely to undertake a market infrastructure.”26 Equity sans frontières
  26. 26. Trend 2: New players in the stock exchange arena are developing, but not a uniform paceQ: Which exchange Some exchanges are revisiting their PwC’s previous report, “Capital Markets do you think listing rules and compliance procedures in 2025,” found that 55% of market issuers consider in an effort to appear robust and participants believe that Shanghai will (beyond their home exchange) 55% credible. The Singapore Exchange, for be the exchange most companies will when planning an example, has revised the admissions consider listing on by 2025, despite IPO? (N.B. from rules for listing on its Main Board to not currently being accessible to Capital Markets in increase the market capitalisation international issuers. The launch of an 2025 report) Shanghai requirement and other thresholds for International Board in Shanghai may IPOs. “Singapore is effectively trying be a game‑changing event says Chris to make itself more attractive for Marschall of CIMB: “Shanghai is anAlthough established stock exchanges larger companies to list there,” says ambitious city and an aspiring candidatesuch as London and New York will Philippe Espinasse, author of IPO: A to be the ‘New York of Asia’.” As well ascontinue to offer issuers access to global Global Guide. “Singapore’s initiative providing a gateway to Chinese marketscapital pools, exchanges in emerging remains an exception thus far,” he says, for international issuers, the opening upeconomies are developing their own “although the Stock Exchange of Hong of Shanghai will also give Chinese retailofferings too, though not necessarily at Kong highlighted in the policy agenda investors the ability to invest in overseasa uniform pace. for 2012 and beyond, in it’s 2011 Listing businesses. Committee Report, that it is looking at a review of listings by overseas companies as well as at secondary listings.” Other exchanges are likely to follow suit.Trend 3: competition among exchanges will intensifyQ: Do you think companies or PwC’s Kennedy Liu believes Hong Kong has the potential to become certain industries one of three key international listing centres: “Whilst Hong Kong is will benefit from stock exchange 71% unlikely to overtake New York or London for fundraising, its outlook mergers / for cross‑border listings has improved substantially, particularly as partnerships / a gateway into China. Some of the world’s top fundraisers are based integration? in Hong Kong: AIA, ICBC, Agricultural Bank of China, so there is the market infrastructure which appeals to large, international issuers.”The globalisation of capital markets is One outcome of greater competition The issuers in our quantitative studycreating greater competition among could be an increase in strategic agree that these developments willexchanges as they strive to attract partnerships and alliances, the creation bring benefits, with 71% saying thatglobal issuers. Alexander Hoeptner, of NYSE Euronext remaining the best stock exchange mergers, partnershipsExecutive VP of Market Services at example to date. The London Stock and integration will make cross‑borderDeutsche Börse, believes that issuers Exchange, for example, has recently listing more attractive.will assess an exchange by the access developed an agreement with Mongoliato liquidity it can offer: “The role of a to make it easier for issuers there tomodern exchange is to provide issuers access London’s liquidity. Scott Cutlerwith access to the liquidity pools of the of NYSE similarly observes that, “Asworld. Investing in electronic trading an exchange we are increasingly beinginfrastructure is one way for exchanges asked to facilitate business introductionsto enhance access to those liquidity and partnerships.”pools for issuers.” PwC 27