Baker McKenzie Act On the First Global Depositary Receipt Offering From China.

Legal News & Analysis - Asia Pacific - China - Capital Markets

6 July, 2019




Baker McKenzie have advised in connection with an offering of Global Depositary Receipts ("GDRs") and listing on the London Stock Exchange (the "LSE") by Huatai Securities Co., Ltd. ("Huatai"), the first transaction under the Shanghai-London Stock Connect. 


The Shanghai-London Stock Connect was proposed by Chinese President Xi Jinping during his visit to the UK in October 2015. It allows:


  • eligible blue chip issuers listed on the Shanghai Stock Exchange (the "SSE") to list GDRs on the LSE; and
  • eligible blue chip issuers premium listed on the LSE to list Chinese Depositary Receipts ("CDRs") on the SSE.


What are the benefits of the Shanghai-London Stock Connect?


The Shanghai-London Stock Connect directly links the LSE and SSE and is a strategic component in China's capital market reforms. It gives domestic firms support in expanding their global businesses and opens up new opportunities for investors to access more of the market. 


Through cross-listing GDRs, Chinese companies will gain access to one of the deepest pools of international capital in the world, expand their shareholder base, raise foreign capital directly to fund acquisitions and expansions into new markets, as well as gain more publicity and recognition internationally. 


Through cross-listing CDRs, for the first time in history, non-Chinese companies can make their securities available in Mainland China and access Chinese investors. It gives London-listed companies a unique opportunity to grow and consolidate their China footprint and boost their brand recognition to an investor community of 100 million.


How do GDRs under the Shanghai-London Stock Connect work?


Chinese GDR issuers will need to meet certain eligibility criteria set forth by the LSE, the SSE and local regulators (the Financial Conduct Authority (the "FCA") through the United Kingdom Listing Authority (the "UKLA") and the China Securities Regulatory Commission (the "CSRC")), including:


  1. a minimum market capitalisation of RMB 20 billion (approx. GBP 2.2 billion)
  2. a listing on the Main Board Market of the SSE
  3. follow-on offering approval from the CSRC
  4. the GDRs meeting the 25% free float requirement
  5. the publication of a UKLA-approved prospectus, and
  6. UKLA approval of an application to admit the GDRs to its Official List


GDR holders should be aware of the applicable Chinese foreign ownership limits. Firstly, the aggregate holding of a single non-Chinese investor of the equities of a Chinese company (including the A shares, H shares and GDRs, whether held directly or indirectly) must not exceed 10% of the total outstanding shares of that Chinese company. Secondly, the aggregate holdings of A shares of all non-Chinese investors in a Chinese company may not exceed 30% of the total outstanding shares of that Chinese company. Overseas investors' strategic investments in listed companies abiding by the law shall not be bound by the aforesaid limits.


It should also be noted that GDR holders will not be permitted to redeem their GDRs and hold the underlying A shares in their on-shore accounts or have the underlying A shares held on their behalf by a designated broker. They can only redeem their GDRs by selling the underlying A shares for cash and using that cash, if they wish, to purchase and hold different A shares via a designated broker (assuming, if they are non-Chinese investors, they are eligible to purchase and hold A shares). In addition, there is a 120-day lockup period following the date of admission to the Shanghai Segment of the LSE during which GDRs subscribed for by investors may not be redeemed.


The Huatai offering


Huatai is a leading technology-enabled securities company in China, with a highly collaborative business model, cutting-edge digital platforms, and an extensive and engaging client base.


Our first-hand involvement in the transaction has given us a unique and in-depth insight into the opportunities and challenges brought by the Shanghai-London Stock Connect and we are uniquely placed to assist Chinese corporates to launch their GDRs on the Shanghai Segment of the LSE in the near future.


Baker McKenzie


For further information, please contact: 


Hang Wang, Partner, Baker & McKenzie