asia-pacifi c and chinese companies on aim: opportunities and …€¦ · bridging the cultural gap...

London capital markets: Bridging the cultural gap

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Asia-Pacifi c and Chinese companies on AIM: opportunities and challenges

Survey background

We conducted two online surveys in February and March 2016, one aimed at Asia-Pacific and Chinese companies listed on London capital markets, specifically AIM, the other aimed at advisers to such companies.

Respondents to our company survey include executive directors, non-executive directors, chief financial officers and other senior managers. Respondents to our adviser survey include representatives of nomads, brokers, lawyers, financial PR agencies and accountants.

1London capital markets: Bridging the cultural gap

Foreword

This report is not intended to dwell on the recent

issues involving a number of Chinese companies

listed on AIM, but to share the views of Asia Pacific

and Chinese companies and their advisers and

focuses on how they might be able to address the

challenges they face when coming to London

capital markets and avoid the issues which have

overshadowed certain Chinese issuers in recent years.

Growth in China may have slowed, but there remain

good opportunities to invest in companies with a

strong business, credible management team and a

clear growth plan.

Businesses based in the balance of the Asia-Pacific

region may also find themselves affected by the

shadow falling over certain Chinese companies. They

too need to understand what investors and analysts

require of them in order to establish confidence and

attract and retain long-term backing.

Some of the challenges that Asia-Pacific and Chinese

companies face are common to entities from all

geographies. Under performance and poor corporate

governance, for example, will always weaken

investor confidence. Regardless of their home

market, all companies experience a learning curve

when converting from a private to public company

and in coming to terms with the impact of new

requirements, including the greater transparency

expected of them.

This report, highlighting the answers of our

respondents, shows that professional advisers have

important roles to play in guiding aspiring quoted

companies through the listing process and beyond.

Understanding the differences in business culture

and realising that communication isn’t always

straightforward is a good start to facilitate

the process.

The vital importance of corporate governance also

comes through strongly. Companies from outside

the western business tradition need to understand

that AIM requirements, as relatively light touch as

they may be, must be met. In fact, companies

suffering negative sentiment, even where their story

is a strong one, should consider raising their

governance bar and applying standards higher than

the minimum required.

Marty Lau – Partner

Head of Capital Markets

Moore Stephens

2 London capital markets: Bridging the cultural gap

Survey findings

Is AIM achieving its target of simplicity?Compared to the Main Market, AIM was designed as

a market with lighter touch listing requirements and

ongoing regulation, as appropriate to smaller,

growing companies. Our survey finds that both

advisers to AIM companies and the companies

themselves generally find this to be the case.

None of the advisers or companies surveyed consider

the AIM listing rules to be complex or extremely

complex from the perspective of issuers. In fact,

the vast majority of advisers (83%) classify them as

not complex and little complex.

We also asked advisers how difficult they consider it

to be to fulfil post-admission responsibilities as a

nomad for AIM companies operating in China or the

Asia-Pacific region. Again the majority of participating

advisers (70%) see this as not complex.

Whereas some companies do see more complexity, as

might be expected, 25% still see the AIM rules as not

complex and over half (58%) think they are only a little

complex, while 17% describe them as relatively

complex. Asked about ongoing obligations post-

admission, 33% of company respondents do not think

the rules are complex, while 50% see them as a little

complex and 17% relatively complex.

Relatively complex

Complex

Extremely complex

Little complex

Not complex

AIM rules

Asia-Pacific and Chinese companies' views on the complexity of AIM requirements

Little complex

Ongoing obligations post-admission

25% Not complex33%

58% 50%

17%

0%

0%

Complex

Extremely complex

0%

0%

Relatively complex17%Relatively complex

Complex

Extremely complex

Little complex

Not complex

AIM rules

Asia-Pacific and Chinese companies' views on the complexity of AIM requirements

Little complex

Ongoing obligations post-admission

25% Not complex33%

58% 50%

17%

0%

0%

Complex

Extremely complex

0%

0%

Relatively complex17%

25% of companies see the listing rules as ‘not complex’


The fact that companies and advisers associate AIM

with a relative lack of complexity is welcome.

However, this success may also be linked to some of

AIM’s recent problems.

Some companies may misunderstand this relative

simplicity, mistakenly thinking that a lighter touch

regime means that compliance with the rules is

voluntary. In fact, a respondent commented that,

some maybe being misled by inexperienced local

advisers and so have failed to understand the

importance placed by UK regulators and investors on

at least minimum compliance standards being met. It

is important that all advisers emphasise to any

company seeking an AIM listing that, although the

requirements may be lighter than on the main

market, they are non-negotiable and failure to meet

them will damage share price performance.

Listing process issuesAdvisers and companies have different perspectives in

terms of their experiences of the listing process. The

vast majority of company respondents (83%) say their

business did not encounter any significant issues

during the listing process for admission on AIM. This

re-affirms the fact that companies listing on AIM find

the process to be a relatively straightforward one.

Nevertheless, 67% of advisers say they have

encountered significant issues during the listing

process for Chinese or Asia-Pacific companies coming

to AIM. This is perhaps not too surprising. Advisers

work with multiple companies, so are more likely to

experience a significant issue at some point than an

individual company experiencing the listing process.

67% of advisers say they have encountered significant issues during the listing process

It’s cultural. The Chinese companies who are private suddenly find themselves subject to UK regulatory requirements and simply do not understand why these things are important or should be open to scrutiny.

Financial PR agency


Reasons for listing on AIMAccess to capital is the dominant reason that

companies surveyed decided to list in the UK, all

participants ranking it as extremely important or

important. They also place high importance on the

positive impact an AIM listing would have on their

company’s reputation or profile.

Advisers also place high importance on these two

reasons, although slightly less than on the desire for

improved corporate governance. It may be that advisers

interpreted this question in a particular way, responding

from the viewpoint that an AIM listing would have the

effect of improving corporate governance.

One interesting difference between company and

adviser responses concerns the facilitation of merger

and acquisition (M&A) activity. Half of companies say

that this was an important or extremely important

reason for listing on AIM, compared to only a quarter

of advisers. Similarly, over half (58%) of companies

think that access to customers was an important or

extremely important reason for listing on AIM,

compared to only 25% of advisers.

The fact that so many advisers have encountered

issues should not be waved aside. In explanatory

comments, many advisers refer to communication

failings, particularly when things go wrong. Some

Asia-Pacific and Chinese companies may not

appreciate that UK advisers would rather be told

of bad news when it happens, rather than discover

it later on. It seems that culture differences (as

considered later) can cause problems in creating

strong relationships between companies and

their advisers.

This helps to explain why, when we asked advisers

about the extent to which Asia-Pacific and Chinese

clients had satisfied their professional requirements in

the UK, only 5% describe themselves as completely

satisfied. Almost a quarter (23%) are satisfied and

19% a little satisfied.

In stark contrast, the vast majority (92%) of

companies describe themselves as extremely satisfied

(25%) or satisfied (67%) when asked about how well

their professional advisers helped them meet their UK

listing objectives.

92% of companies are satisfied with their advisers


58%

44%

8%

60%

Access to capital

Companies

Important

Extremely Important

Important

Extremely Important

Advisers

Reputation / company profile

Facilitate M&A

Access to customers

Access to European / globalconsumer markets

Improving corporate governance

Access to suppliers

Facilitate debt financing

Access to government tenders / contracts

42%

30%

75%

19%

42%

9%

16%

8%

16%

33%

9%

8%

12%26%

42% 8%

16%

8% 8%

9% 5%

17%

14% 5%

17%

5%

65%

50%

8%

Reasons for Asia-Pacific and Chinese companies to list on AIM

58%

44%

8%

60%

Access to capital

Companies

Important

Extremely Important

Important

Extremely Important

Advisers

Reputation / company profile

Facilitate M&A

Access to customers

Access to European / globalconsumer markets

Improving corporate governance

Access to suppliers

Facilitate debt financing

Access to government tenders / contracts

42%

30%

75%

19%

42%

9%

16%

8%

16%

33%

9%

8%

12%26%

42% 8%

16%

8% 8%

9% 5%

17%

14% 5%

17%

5%

65%

50%

8%

Reasons for Asia-Pacific and Chinese companies to list on AIM

This suggests that advisers may be overlooking

opportunities that exist post-listing to advise Asia-

Pacific and Chinese companies on the fulfilment of

M&A strategies. Moore Stephens’ client experience

supports the finding that there is a strong appetite

among Asia-Pacific and Chinese companies for UK and

continental European acquisitions, and this is an area

where professional, local expertise is highly valued.

50% of companies think that facilitating M&A activity is an important or extremely important reason for listing on AIM


Communication gapsBoth companies and advisers place high importance

on communication with investors, advisers and

regulators, although there is a difference in degree.

All companies rank communication in the top two in

terms of importance, 42% saying it is significantly

important with the remaining 50% saying it is

important. Similarly, almost all (98%) of the advisers

surveyed give this a top two ranking, with 93%

giving it the highest level of importance.

Similarly, the importance of effective public relations

and investor communications is understood. All

companies see this as related to their company’s

market performance, 33% seeing it as highly related.

Among advisers, 80% think effective public relations

and investor communications would influence a

company’s share performance, with 33% seeing the

two as highly correlated.

However, differences of opinion arise in terms of how

easy or difficult companies and advisers perceive

communication to be accomplished successfully.

Asked about the ease or difficulty of communicating

with UK investors, advisers and regulators, just 8% of

companies see this as difficult. A third (33%) think it

is very easy or easy, with 58% saying it is neither easy

nor difficult.

How wide is the cultural gap?Among companies surveyed, 50% see no or little

difference between the business culture in their

home country and the UK. Only 17% see these

as very or broadly different.

Advisers are much more likely to identify a culture

gap between western business practice and that

of Chinese or Asia-Pacific businesses. Under a

quarter (21%) say they have experienced no or

little difference, while 59% have found practices

to be completely or broadly different.

It seems that the culture gap can cause problems

in terms of creating strong relationships between

companies and their advisers.

Overcoming these cultural differences can be a

challenge. Companies can respond by taking

steps to improve communication with advisers, for

example, by appointing at least one UK-domiciled

director and making full use of non-executive

directors who understand UK and local business

practices and corporate governance expectations.


63% of advisers find it difficult to communicate with Chinese or Asia-Pacific clients compared to typical UK companies

Turning to advisers, when asked how easy or difficult

they find it to communicate with Chinese or Asia-

Pacific clients compared to typical UK companies, only

9% describe this as easy or very easy. Over a third

(35%) think it is difficult and 28% very difficult. This

result echoes the fact that advisers appear to feel they

face more issues than companies when completing

AIM listings, with communication problems already

identified as a key concern.

It seems that companies do not fully recognise that

communication weaknesses exist. This may be partly

because they are not sufficiently close to the market

in terms of having a UK base. The majority of

companies surveyed (83%) have not established a

UK office. One response to address weak investor

confidence might be to consider setting up a

representative office, backed up by the appointment

of UK-domiciled directors. This could make a real

difference to communication channels, by providing a

clear point of contact in an accessible location for

investors and advisors.

The importance of a high-quality board of directorsThe quality of a company’s board is an important

issue for UK corporate governance. Companies and

advisers were both asked to rank the importance of a

number of factors when assessing the make-up of

the board of directors. Not surprisingly, advisers place

high importance on multiple factors, particularly prior

industry experience, prior listed company board

experience, English language fluency and relevant

professional qualifications. The majority of companies

also see all these factors as significant or important,

although they uniformly place less emphasis on them.

This suggests that companies may not fully appreciate

the importance placed on board quality by investors,

advisers and regulators. Those that don’t see prior

listed company experience, English language fluency

or professional qualifications as important could find

it particularly challenging to sustain investor

confidence and may find communication especially

challenging. Seeking and acting upon an independent

review of board competency could be one approach

to help improve the confidence of both investors and

nomads in Asia-Pacific and Chinese companies. Amongst Chinese companies a lack of belief in their cash balances has been evident. An independent report to shareholders, whether an audit or some other form of comfort on the cash position would help to silence critics.

Broker and financial adviser


Factors that affect the quality of the board of directors

31%

2%

3%

Prior industry experience

Companies

Important

Unimportant

Important

Unimportant

Advisers

Prior experience as listed company board member

English language fluency

Relevant professional qualifications

Investor relations capability

UK educated

69%

98%

16%

97%

85%

93%

23%

100%

77%

7%

23%

7%93%

62% 38%

77% 23%

77%

15%

84%

Factors that affect the quality of the board of directors

31%

2%

3%

Prior industry experience

Companies

Important

Unimportant

Important

Unimportant

Advisers

Prior experience as listed company board member

English language fluency

Relevant professional qualifications

Investor relations capability

UK educated

69%

98%

16%

97%

85%

93%

23%

100%

77%

7%

23%

7%93%

62% 38%

77% 23%

77%

15%

84%

Strengthening investor confidenceGiven the decline in the performance of the majority

of Asia-Pacific and Chinese shares issued on AIM in

recent months, we specifically asked both companies

and advisers what steps they thought could

strengthen investor confidence. Encouragingly,

both survey groups place most importance on

communicating more regularly with investors. By

communicating more regularly, companies could

expect to benefit from improved investor appetite

and nomad support.

Advisers also place high importance on auditing

interim financial results. Although this is not currently

a requirement for AIM companies, it could provide

substantial reassurance to investors and help to

minimise the risk of nasty shocks emerging at year

end. Similarly, a majority of advisers see independent

reviews (for example, specific reviews or reviews of

corporate governance and internal control procedures)

as potentially important steps to strengthen investor

confidence. However, the value of both interim audits

and independent reviews is not recognised strongly by

most companies surveyed.


Comments from advisers made during the survey also

emphasise the importance of generally improved

corporate governance standards among Asia-Pacific

and Chinese companies. Some stress the need for

qualified finance directors, at least one NED being

from the UK and known in the UK, board meetings

involving all directors, a UK-domiciled director, access

to key directors during roadshows, and faster

reporting of any difficult issues.

Nomads and non-executive directors clearly have a

role to play in explaining to companies why enhanced

corporate governance can reassure investors and help

to improve share price performance. An important

tenet of UK corporate governance is that high

standards not only protect shareholder interests, but

also help to improve company performance. Interim

audits and independent reviews could help

companies to address weaknesses earlier, identify

risks and take steps that enable them to operate with

greater resilience and deliver better results.

Advisers also place more importance than companies

on increasing dividend yields, although only 51% of

advisers think this would help to strengthen investor

confidence. This reflects the fact that many UK large

and institutional investors, such as pension funds,

seek, by preference, long-term capital growth.

42%

60%

26%

Communicate with investors more regularly

Have interim results audited

Have independent reviews

Increase dividend yields

42%

26%

17%

47%

25%

21%

37%

49%

14%

33%

8%

25%

Companies

Important

Extremely Important

Important

Extremely Important

Advisers

Strengthening investor confidence

42%

60%

26%

Communicate with investors more regularly

Have interim results audited

Have independent reviews

Increase dividend yields

42%

26%

17%

47%

25%

21%

37%

49%

14%

33%

8%

25%

Companies

Important

Extremely Important

Important

Extremely Important

Advisers

Strengthening investor confidence


Overall perspectivesEvery company surveyed believes that being quoted

in the UK has benefited their business: 17% say it has

been very helpful and 83% helpful. Every company

participant said they would be willing to recommend

UK capital markets to others. This indicates that, at

least among the businesses in this survey, AIM’s

reputation remains strong and that good quality new

companies can be expected to seek a UK listing in

the future.

The key question is, will nomads and other advisers support them? We asked advisers whether they planned to spend

more or less time in the next 12 months exploring

London listing opportunities for Chinese or Asia-

Pacific businesses. Just over a quarter (26%) say

they plan to spend more time – a surprisingly high

result, given the recent negative sentiment towards

existing AIM listed companies.

This is encouraging for aspiring companies. There are

nomads and other professional advisers who are

urged to continue looking for opportunities among

Asia-Pacific and Chinese companies. If they look, they

will find entities with strong past performance and

future potential, who could benefit from seeking a

London listing and attracting support from the

London capital market.

On the other hand, if advisers walk away from these

opportunities, not only they but also the London

Stock Exchange, the UK and the global economy

could be the poorer for it.

26% of advisers plan to spend more time exploring London listing opportunities in the next 12 months

I have not dealt with any Chinese companies. Indian/Asia Pacific companies are on the whole run by very sophisticated people and they know how to be careful. They usually meet all our credit-worth requirements.

International law firm


Conclusion

There is no doubt about the challenges faced by

Asia-Pacific and Chinese companies listed on the

London Stock Exchange and those currently seeking a

London listing. Investor confidence has been

weakened and companies need to understand what

is required of them in order to gain and retain the

support of nomads and to attract and maintain

investor backing.

It is essential companies make sure they have thought

through their reasons for seeking a London listing

well before they approach their advisers and begin

the process. A strategy that includes the desire for

M&A activity or access to local customers is likely to

be stronger than one based solely on the desire to

access capital. Companies are also encouraged to

consider how they can demonstrate that they are

listing for long-term growth rather than for short-

term gain.

There is good news for Asia-Pacific and Chinese

companies with high standards of corporate

governance. A commitment to thorough and timely

communication would improve appetite for investment.

Key messages from this survey:• Companies need to make sure they

understand the requirements of a London

listing, and the reasons for seeking a London

listing well before they begin the process.

• They should consider going beyond the

minimum standards established by AIM.

• Although auditing interim financial results is

not currently a requirement for AIM

companies, it would provide substantial

reassurance to investors.

• Companies should consider whether they are

doing enough to communicate clearly and

promptly with investors and analysts.

• Seeking and acting upon an independent

review of board competency is one approach

to helping improve the confidence of both

investors and nomads.

• Companies would benefit from setting up

representative offices, backed up by the

appointment of UK-domiciled directors.

• High standards in corporate governance would

not only protect shareholder interests, but

also help to improve company performance

and compliance.


Advisers are still looking for new opportunities to

work with companies seeking a London listing and

willing to provide advice and support. If all parties

work together to restore investor confidence, the

London capital market community can continue to

provide Asia-Pacific and Chinese companies

with access to capital and so support global

economic growth.

We believe investor confidence in Asia-Pacific and

Chinese companies can be restored by:

• continuing to raise the standard of the companies

currently listed on AIM, for example, through the

delisting of underperformers or the non-compliant;

• ensuring that companies coming to market

understand what is expected of them in terms of

corporate governance and investor relations activity

and furthermore commit to providing the required

cooperation and information;

• improving communication between companies and

their investors, analysts and advisers, by appointing

UK-domiciled directors;

• taking additional steps to reassure investors of the

quality of companies through the completion of

independent reviews.

At Moore Stephens we believe that strong investment

opportunities are still offered by the right Asia-Pacific

and Chinese companies. Investors should not be

deterred from seeking them out, as there are

examples of successful Asia-Pacific and Chinese

companies on AIM.

The reputation of AIM and other UK capital markets

will continue to attract aspiring businesses, and these

businesses need strong support from their advisers to

help them meet market expectations.

The Chinese market is still strong with high growth. Investor sentiment needs to be improved.

CFO of electronics company

About Moore Stephens Moore Stephens is a top ten accounting and advisory network, with offices throughout the

UK and member firms across the globe.

Our clients range from individuals and entrepreneurs, to large organisations and complex

international businesses. We partner with them, support their aspirations and contribute to

their success. In-depth understanding of our clients allows us to deliver focused accounting

and advisory solutions, both locally and globally.

Clients have access to bespoke services and solutions, including audit and assurance,

business support and outsourcing, payroll and employers’ support, business and personal

tax, governance and risk, corporate finance, forensic accounting, wealth management, IT

consultancy, and restructuring and insolvency.

Our success stems from our industry focus, which enables us to provide an innovative and

personal service to our clients in a range of sectors.

Moore Stephens globally Moore Stephens International is a top ten global accountancy and consulting network,

headquartered in London. With fees of over US$2.66 billion and offices in 106 countries,

clients have access to the resources and capabilities to meet their global needs.

Moore Stephens International has a global presence of 626 offices, which include 91 offices

in 14 countries across the Asia-Pacific region, of which 47 offices are located in China.

Our China and Asia-Pacific Services Desk team is led by Marty Lau, a Partner at

Moore Stephens London who resides in Hong Kong. This capability provides a strong

link between our Asia-Pacific clients and our global network.

We are therefore well placed to understand the investment needs of Asia-Pacific businesses

and individuals, and to provide insight and opportunities from across the globe.

Contact informationIf you would like further information on any item

within this brochure, or information on our services

please contact:

Phil Cowan

[email protected]

Marty Lau

[email protected]

Moore Stephens LLP, 150 Aldersgate Street, London EC1A 4AB T +44 (0)20 7334 9191www.moorestephens.co.uk

We believe the information contained herein to be correct at the time of going to press, but we cannot accept any responsibility for any loss occasioned to any person as a result of action or refraining from action as a result of any item herein. Printed and published by © Moore Stephens LLP, a member firm of Moore Stephens International Limited, a worldwide network of independent firms. Moore Stephens LLP is registered to carry on audit work in the UK and Ireland by the Institute of Chartered Accountants in England and Wales. Authorised and regulated by the Financial Conduct Authority for investment business. DPS31805 May 2016

asia-pacifi c and chinese companies on aim: opportunities and …€¦ · bridging the cultural gap...

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