June 17, 2019 / 9:28 AM / a month ago

UPDATE 2-China's Huatai lifts off in long-awaited London-Shanghai share link

* Huatai’s GDRs up 7% on market debut

* IPO ranks as largest UK listing since 2016

* Low trading volumes with only one security on offer

* Unlikely to spark UK company listings in Shanghai (Adds comments from Huatai chairman, Morgan Stanley banker)

By Pamela Barbaglia

LONDON, June 17 (Reuters) - Huatai Securities , one of China’s largest brokerages, became the first company to list in London under a much-anticipated link with the Shanghai exchange, with its shares rising 7% on Monday.

Under the scheme, known as Stock Connect, Shanghai-listed companies can raise new funds on the London stock market while British companies can broaden their investor base by selling existing shares in Shanghai.

“We firmly believe in the integrity and stability of the UK financial market,” Chairman and President Zhou Yi, said in an email to Reuters after Huatai’s global depositary receipts (GDRs) rose to $21.96, before easing to $21.25 by 1334 GMT.

Huatai’s GDR offering, which ranks as the largest UK listing since 2016, comes as Britain and China hold a new round of talks to strengthen economic ties, against a backdrop of an ongoing trade war between the United States and China.

Britain wants to offer Chinese companies an attractive trading environment as it sees cooperation with Beijing as critical after Brexit.

However, bankers and analysts said Huatai’s listing is unlikely to spark similar moves in Shanghai by British firms, who have expressed caution over the regulatory regime in China.

British finance minister Philip Hammond said Stock Connect was “a ground-breaking initiative, which will deepen our global connectivity as we look outwards to new opportunities in Asia.”

City of London Corporation Policy Chair Catherine McGuinness said it could be a “gamechanger in deepening UK-China financial cooperation and expanding access to China’s capital markets”.

But while the government says British exports to China have tripled since the first round of economic and financial talks in 2008, from 7.6 billion pounds ($9.56 billion) to 23.1 billion pounds in 2018, the appeal of trading in Shanghai remains low.

HSBC has long been seen as a possible candidate for a Shanghai listing but the bank, which already trades in London and Hong Kong, has yet to take steps in that direction.

Few Chinese companies are seeking to follow in Huatai’s footsteps for the time being, bankers said, with initial interest yet to translate into concrete listing plans.

LOW VOLUMES

Huatai, which is valued at about $21 billion through its Shanghai and Hong Kong listings with the likes of BlackRock and Vanguard among its top investors, had originally planned its London listing for December. But it was delayed by uncertainty over how Beijing would treat currency conversion back into yuan.

However, once cross-border capital management rules on depository receipts were published on May 27, the deal gained momentum with an investor roadshow in June.

“Once the rules were set out, the deal progressed quickly. Huatai’s performance today is an important test and should encourage other Chinese companies to press ahead with a London listing,” said Shane Zhang, co-head of Asia Pacific Investment Banking at Morgan Stanley which acted as one of the leading banks on the deal.

JP Morgan and Huatai Financial Holdings also worked as joint global co-ordinators and joint bookrunners, with Credit Suisse and HSBC among the joint bookrunners.

One trading source said Huatai’s market debut had failed to spark excitement, with trading volumes remaining low as traders had yet to become aware of the new product.

Some 18,000 GDRs in Huatai had changed hands by 0913 GMT, at a total value of just under $400,000, as compared with 5.87 million shares in Deutsche Bank traded by 0913 GMT - to a total value of 35 million euros ($39.25 million).

Huatai sold 75 million GDRs at $20.50 each on June 14, the bottom of its price range, representing 9.1% of its outstanding share capital.

Some of the proceeds, which exceeded $1.5 billion, may be used to fund European acquisitions.

Chairman Yi told Reuters Huatai was “open-minded to M&A opportunities in Europe,” particularly those “that have synergy with our current business, such as investment banking, asset management and wealth management.”

The deal drew strong interest from international investors, particularly hedge funds, sources said.

“There was a clear arbitrage opportunity for some hedge funds during the IPO allocation,” said Morgan Stanley’s Zhang.

“But long-term investors were also present and down the line they may take bigger positions in Chinese companies, particularly those who do not yet have an international listing.”

Britain’s Financial Conduct Authority (FCA) said it had signed a memorandum of understanding regarding regulation with the China Securities Regulatory Commission (CSRC).

“The new co-operation we’re announcing today will be an important contributor to the success of the scheme,” FCA boss Andrew Bailey said. ($1 = 0.7947 pounds) (Reporting by Pamela Barbaglia, additional reporting by Helen Reid, Josephine Mason and Clara Denina; editing by Louise Heavens and Alexander Smith)

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