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Listing of Chinese companies in Germany
A thesis submitted to the Bucerius/WHU Master of Law and Business Program in partial fulfillment of the requirements for the award of the Master of Law and Business (“MLB”) Degree
Yingbo Wang July 22, 2011
12582 words (excluding footnotes) Supervisor 1: Prof. Mei Wang Supervisor 2: Dr. Stefan Söhn
2
ABSTRACT
With the rapid economic growth in China, Chinese companies are becoming ever
more international. Therefore, Chinese companies are increasingly taking the
advantage of foreign capital markets to raise the funds necessary for business
development. The most effective way to achieve this is by listing shares of the
company on a foreign stock exchange. During recent years it has been observed that
more and more Chinese companies have chosen Germany as the location of overseas
listing. In this thesis the listing segments in the Frankfurt Stock Exchange are compared.
The admission requirements and the follow-up obligations after listing for each listing
segment are discussed in detail. 34 Chinese companies which have already listed in
Germany are studied with an emphasis on the chosen listing segments and the
transaction types. Also we have analyzed those companies in terms of the size, the
industrial sector and the structure of the management and supervising board. Finally,
we have shortly discussed the motivations of Chinese companies to list their shares in
Germany. Several popular hypotheses of companies listing overseas from literature
have been shown and explained. We then reviewed some literatures, comparing
different venues of listing. It has been postulated that most of the Chinese companies,
especially the medium and small-sized companies chose Germany as the listing venue
due to the lower cost of listing.
3
TABLE OF CONTENTS
1. Introduction .......................................................................................................... 7
2. German capital market structure and regulatory structure ............................ 9
2.1 Deutsche Börse Markets and listing Segments .................................................... 9
2.1.1 Regulated Market and Regulated Unofficial Market................................................ 9
2.1.2 Listing segments of the regulated market ............................................................... 11
2.1.3 Listing segments of the Regulated Unofficial Market ............................................ 12
2.2 Regulatory Structure .......................................................................................... 14
2.2.1 Mandatory prospectus for public offering .............................................................. 16
2.2.2 Admission requirements ......................................................................................... 19
2.2.3 Follow-up obligations (Transparency requirements) ............................................. 22
2.2.3.1 Regulated Unofficial Market ............................................................. 23
2.2.3.2 Regulated Market .............................................................................. 25
3. Chinese regulatory structures of overseas listing ............................................ 33
3.1 China’s regulatory framework for direct overseas listing .................................. 34
3.2 China’s regulatory framework of indirect overseas listing ................................ 35
4. Analysis of Chinese companies already listed in Germany ............................ 39
4.1 Overview of all the Chinese companies listed on Frankfurt Stock Exchange ... 39
4.2 Analysis of public offerings of Chinese companies ........................................... 48
4.2.1 Data of offered shares ............................................................................................. 49
4.2.2 Group structure ....................................................................................................... 53
4.2.3 Structure of management and supervisory boards .................................................. 55
5. Motivations of Chinese companies listing in Germany ................................... 62
5.1 Reasons of overseas listings ............................................................................... 62
5.1.1 Market segmentation hypothesis ............................................................................ 62
5.2.2 Information environment hypothesis (Signaling effect) ......................................... 63
5.2.3 Cost of listing ......................................................................................................... 64
5.2 Comparison of listing venues ............................................................................. 65
5.2.1 Regulatory requirements ........................................................................................ 65
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5.2.2 Cost and liquidity ................................................................................................... 68
6. Conclusion ........................................................................................................... 71
Bibliography ............................................................................................................... 73
Appendix ..................................................................................................................... 81
The group structure of Chinese issuers on Frankfurt Stock Exchange .................... 81
China Specialty Glass AG ............................................................................................... 81
United Power Technology AG ........................................................................................ 81
Powerland AG ................................................................................................................. 82
Madison Property AG...................................................................................................... 82
KINGHERO AG ............................................................................................................. 83
Euro Asia Premier Real Estate Company Limited .......................................................... 83
Joyou AG ......................................................................................................................... 84
Vtion Wireless Technology AG ...................................................................................... 84
Business Media China AG .............................................................................................. 85
Greater China Precision Components Ltd. ...................................................................... 85
Asian Bamboo AG .......................................................................................................... 86
ZhongDe Waste Technology AG .................................................................................... 86
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LIST OF ABBREVIATIONS
AG Aktiengesellschaft or Stock Corporation
Art. Article
BaFin The German Federal Financial Supervisory Authority
CESR The Committee of European Securities Regulators
CNY Chinese Yuan
CSRC The China Securities Regulatory Commission
DGAP Die Deutsche Gesellschaft für Ad-hoc-Publizität
EU European Union
FAQ Frequently asked questions
FWB® Frankfurter Wertpapierbörse The Frankfurt Stock Exchange
GAPP Generally Accepted Principles and Practices
HKEx Hong Kong Exchanges and Clearing Limited
IASB International Accounting Standards Board
IASC International Accounting Standards Committee
IASs International Accounting Standards
Ibid. Ibidem
IFRS International Financial Reporting Standards
IPO Initial Public Offerings
ISIN The International Securities Identification Number
6
Ltd Limited Company
MiFID Markets in Financial Instruments Directive
MOFCOM Ministry of Commerce of the P. R. China
nat. National
NASDAQ National Association of Securities Dealers Automated Quotations
No. Number
OJ Official Journal of the European Union
P. Page
Para. Paragraph
PP Private Placement
PWC PricewaterhouseCoopers LLP
Q1 First Quarter
Sec. Section
Sent. Sentence
USD United States dollar
WKN the German Securities Code
WpHG The German Securities Trading Act
WpPG The German Securities Prospectus Act
WpÜG The Securities Acquisition and Takeover Act
XETRA Exchange Electronic Trading
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1. Introduction
The reality shows that firms not only choose their product markets, but also choose
their financing markets. It has been witnessed that since 2007 a lot of foreign firms
have listed their equity shares on German stock exchange instead of their home
exchange. Among a total number of 75 foreign companies that have listed shares in the
Frankfurt Stock Exchange (FWB Frankfurter Wertpapierbörse), 34 are Chinese
companies1. It has been observed that FWB has become one of the most popular
locations for the Chinese companies, particularly medium or small sized companies,
when they consider an overseas listing. Obviously, going public in a foreign market
other than in the domestic market could be troublesome for a company due to its lack of
knowledge of the local legal and statutory requirements. In this thesis, we introduce
different options for Chinese companies to list their shares in the FWB. Furthermore,
the admission requirements and the follow-up obligations after listing of various
options are compared and discussed. The Chinese companies that have already listed in
FWB are then analyzed in detail, with the focus on how they have chosen to list
themselves on the FWB.
One of the interesting questions is what the motivation of the Chinese companies to go
1 Note: Excluding the market segment “Freiverkehr” (unofficial regulated market), “Number of listed
companies”, World Federation of Exchanges [Internet source]
8
public overseas is. In this thesis we shortly introduce some of the most popular
hypotheses why companies choose to list their shares in a foreign market.
The remainder of this thesis is organized as follows. Section 2 gives an overview of
markets and segments in Frankfurt Stock Exchange. Different options for Chinese
companies to go public are examined and the emphasis has been put on the
requirements of admission and the obligations after listing. The advantages and
disadvantages of various options are then shortly discussed. In Section 3, the Chinese
regulatory structure of overseas listing is introduced. The regulatory framework for
both direct and indirect overseas listing is examined. In Section 4, the Chinese
companies already listed in Frankfurt Stock Exchange are analyzed. The segments and
listing types of the Chinese companies are reviewed. Section 5 discusses the possible
motivations of Chinese companies listing in Germany. First of all we have introduced
several hypotheses that potentially explain the advantages of overseas listing. Secondly,
we have compared several candidate exchanges that might attract Chinese companies.
Section 6 concludes the thesis.
9
2. German capital market structure and regulatory
structure
There are two legally defined ways to access the capital market in Germany: access via
EU-regulated markets (Regulated Market) and access via markets regulated by the
stock exchanges themselves, also known as Regulated Unofficial Market or Open
Market2. The Frankfurt Stock Exchange (FWB Frankfurter Wertpapierbörse) is one of
the largest stock exchanges in the world, which accounts for over 90 percent of the
turnover in the German market. The FWB is owned and operated by Deutsche Börse
AG, and offers access to both the Regulated Market and the regulated Unofficial
Market. In this section the above mentioned markets and the listing segments in each
market are introduced. The regulatory structures with regard to each listing segments
are discussed in detail.
2.1 Deutsche Börse Markets and listing Segments
2.1.1 Regulated Market and Regulated Unofficial Market
Regulated Market and Regulated Unofficial Market (Open Market) are two legally
defined ways to access capital market in Europe3. The Regulated Market is an
organized market in accordance with section 2 (5) of the German Securities Trading
2 Beyer, Schikora and Dibelius, 2010, p. 29 3 Market structure, Deutsche Börse Group [Internet source]
10
Act (Wertpapierhandelsgesetz-WpHG)4. Admission of securities and the follow-up
obligations of the participants in the Regulated Market are regulated in detail in the
German Stock Exchange Act, the Stock Exchange Admission Regulation, the
Prospectus Act and the Exchange Rules5.
On the other hand, there is the Regulated Unofficial Market (renamed “Open Market”
effect from October 10th, 2005). Prior to 2005 everything not included in official
exchange trading changed hands virtually on the doorstep of the stock exchange
building. Since 2005, it has become an organized market that is provided by the stock
exchange. In Germany, this type segment can be provided by the stock exchange in
accordance with section 48 of the German Stock Exchange Act (Börsengesetz)6.
Today in the Open Market at FWB, both german and foreign shares, fixed-income
securities are tradable. The Open market does not constitute an organized or regulated
market with the meaning of section 2 (5) of the Securities Trading Act (WpHG), the
Open Market does not represent an organized or regulated market. Deutsche Börse
AG emphasizes that the inclusion of securities to the Open Market is regulated by the
stock exchange with the Directives for the Regulated Unofficial Market7 . The
4 Section 2 (5) of the Securities Trading Act (WpHG) describes the organized market as following: “An
organized market within the meaning of this Act is a market which is regulated and supervised by
state-approved bodies, is held on a regular basis and is directly or indirectly accessible to the public.”
See also Section 4 No. 14 MiFID 5 Regulated Market, Deutsche Börse AG. [Internet source] 6 Such segment can be established by the Stock exchanges according to this article “if the securities
included therein are neither listed nor included in the Regulated Market and as long as orderly trading
and business conduct can be guaranteed”. 7 Open Market (Regulated Unofficial Market), Deutsche Börse AG. [Internet source]
11
Deutsche Börse regards the Open Market as follows: “ The Open Market provides an
alternative to the EU-regulated segment, the Regulated Market, as a point of access to
the capiral market. Small and medium-sized companies, in particular, benefit from easy,
fast8 and cost-effective admission to exchange trading. […] Issuers must fulfill only a
few formal inclusion requirements and no follow up obligations9.”
It can be seen that the fundamental difference between the Regulated Market and the
Regulated Unofficial Market (Open Market) is the rules that are set to provide investors
with legal certainty and transparency. It the case of the Regulated Market, the rules are
set by the public legislators. Therefore, the admission criteria is more stringent and
companies in this market have to fulfill highest transparency requirements. In contrast
to that, the rules are set by the stock exchange itself for the Regulated Unofficial Market,
and companies in this market are faced with fewer formal requirements. This helps
small and medium-sized companies to access the capital market more cost-efficiently.
Hence, it aims at qualified and experienced investors10.
2.1.2 Listing segments of the regulated market
Two segments are subject to the statutory requirements for the Regulated Market at
FWB® Frankfurter Wertpapierbörse: General Standard and Prime Standard. In the
8 Inclusion is possible within five business days; Schlitt and Schäfer, 2006, p. 151 9 Open Market (Regulated Unofficial Market), Deutsche Börse AG. [Internet source] 10 Schlitt and Schäfer, 2006, p. 147
12
General Standard segment companies are subjected to the minimum legal requirements
of the Regulated Market. Therefore, companies are automatically admitted to Gerneral
Standard when listing in the Regulated Market. The General Standard regulation is
specified for all companies seeking a cost-effective listing in an EU-regulated market
and is suitable for companies that want to fulfill EU transparency requirements11.
Prime Standard is a transparency level based on a legal framework provided by the
EU-regulated markets. Companies listed in the Prime standard are therefore required to
meet higher transparency standard than the minimum requirements of those defined by
the General Standard. Due to the higher transparency standard, companies listed in the
Prime Standard segment position themselves better to attract international investors.
Besides, admission to Prime Standard is a key prequisite for shares to be included in
any of the selection indices, such as DAX®.
2.1.3 Listing segments of the Regulated Unofficial Market
The Open Market was renamed by the FWB12 as the “ Open Market” in October, 2005.
The new name is intended to reflect the international character of the market segment.
The Open Market is the exchange regulated market at the Frankfurt Stock Exchange13.
Regulated Unofficial Market (Open market) is structured in First Quotation Board and
11 Market segments by German law, Deutsche Börse Group [Internet source] 12 The Open Market is organized by the Deutsche Börse AG which is the organizing body of the FWB.
Hereinafter FWB and Deutsche Börse should be interpreted as meaning the same body. 13 Other German stock exchanges still call the Unregulated Market “Freiverkehr”.
13
Second Quotation Board. The First Quotation Board is for both domestic and
international companies who are planning to include their shares in exchange trading
in the Open Market for the first time. The main motivation to choose the First
Quotation Board for the companies is to benefit themselves through less stringent
formal requirements. The Second Quotation Board is for all companies whose shares
are already listed or included at another international or domestic trading venue. These
companies will be included in the Second Quotation Board after admission to the
Regulated Unofficial Market (Open Market).
Entry Standard in the Regulated Unofficial Market (Open Market) is analogous to
Prime Standard in the Regulated Market. It can be regarded as a sub-segment in the
Regulated Unofficial Market (Open Market), which features additional transparency
requirements. The Entry Standard segment is created by Deutsche Börse to promote a
simple, quick and cost-efficient condition for companies to include their stocks in
exchange trading. Therefore, Entry Standard is especially suitable for small and
medium-sized companies, which seek access to the capital market, but do not want to
be subject to the stringent transparency standards regulated by EU. Private equity and
venture capital investors often use it as an exit route. The Deutsche Börse describes
the Entry Standard as a “particularly attractive option for companies wishing to make
use of the stock exchange’s core functions as a trading platform and price discovery
mechanism14”
14 FAQ list for the Open Market / Entry Standard, Deutsche Börse AG [Internet source]
14
Table. 1 provides an overview of Deutsche Börse listing segements. It is noted that
transfers between all above-mentioned market segements are possible, as long as the
issuers meet the requirements. In the next setion the regulatory structure for listing in
each segments are discussed in detail.
15 Table 1. Overview of the markets and listing segments offered by Deutsche Börse AG16 (Source:
Deutsche Börse Listing Guide, p.11).
2.2 Regulatory Structure
In the previous section, the different market segments offered by FWB are introduced.
It can be seen that companies that are seeking to go public can choose either of the four
listing segments shown in Table 1. However, companies can also select the type of the
transactions regardless of the segment.
15 Note: The Second Quotation Board is not covered here.
16 Deutsche Börse Listing Guide, Deutsche Börse AG, 2010, p. 11
15
One of the most popular ways for a company to go public is through an initial public
offering (IPO). As the name suggests, an IPO indicates that a company issues common
stock or shares to the public for the first time. Typically, IPOs are carried out by young
companies that seek capital to further expand their business. After the IPO, the
proceeds normally go directly to the issuing company. Sometimes, privately owned
companies also do IPO in order to become publicly traded.
Private placement (also known as non-public offering) is another way for companies to
raise capitals. In contrast to IPO, the securities are not sold to public investors, but
usually to a small number of chosen private investors, such as banks, insurance
companies or pension funds. The securities may consist of stocks, shares of common
stock or preferred stocks etc.
Beside the aforementioned transactions, a company can also choose to simply list its
securities in the market without making a public offer to sell its securities. After listing
on a stock exchange the company becomes a publicly traded entity, which means the
general public can bid to buy the shares from the shareholders and the shareholders can
sell their shares of the company. The distinction between listing without a public offer
and IPO is that the company does not seek to sell any of its securites through such a
procedure. Compared to the IPO and the private placement this option is the most
cost-effective and straightforward way for a company to join the market.
16
In the following sub-sections the legal requirements for each of the options are
described. The different requirements in the four listing segments are explained in
detail.
2.2.1 Mandatory prospectus for public offering
Prospectus is a legal document that gives details about a new issue of shares and invites
the public to buy shares in the company. In Germany, regardless of the listing segments
that is chosen, it is a mandatory document that has to be supplied to and approved by the
German Federal Financial Supervisory Authority (BaFin) whenever a company makes
a public offer. However, the so-called “pass porting-in” might exempt the companies
from such an obligation. EU pass porting, which is introduced by the EU’s Directive17
(The European Union Prospectus Directive (2003/71/EC), is a concept that enables
issuers to raise capital across the European Economic Area (EEA) on the basis of a
single prospectus. Under such a concept, a prospectus approved by the issuer’s
competent authority must be accepted in any other member state within the EU for the
purpose of a public offer.
The Prospectus Regulation18 contains all relevant requirements regarding the content
of the prospectus. Since the purpose of the prospectus is to enable the investors to make
17 OJ L 345, 31.12.2003, p. 64-89 18 Moloney, 2002, p. 103-170
17
an informed assessment of the assets and liabilities, profit and losses, and prospects of
the issuer and of any guarantor, and the rights attached to the securities, the German
Securities Prospectus Act (section 5) requires the prospectus to be clearly structured
and comprehensively formulated, and must contain information which is necessary,
according to the particular nature of the issuer and of the shares offered to the public19.
The minimum content of the prospectus (Regulation EC 809/2004) 20 includes a
comprehensible summary containing the key features and risks of the offering,
information on the issuer itself, audited annual financial statements, quarterly or
half-year financial reports with explanations to the financial results, other key financial
data, a work capital statement, risk factors, and information on the shares to be offered
and the terms and conditions of the offer. Prospectus according to the requirements of
the EU regulation can be found on the websites of any public company listed in the EU
regulated markets21.
It is worthwhile to point out that the form of the prospectus might vary depending on
the origin of the issuer. For instance, for German issuers the prospectus must in general
be in German language. International issuers, such as Chinese companies, are allowed
to use English. However, a short summary of the prospectus in German must be
provided (Section 19 (4) of the German Securities Prospectus Act). Furthermore, the
accounting standards of the reports within the prospectus accepted by BaFin depend on
19 Gerven, 2008, p. 32 20 OJ L 149, 30.4.2004, p. 1-187 21 China Specialty Glass AG, 2011
18
both the origin of the issuer and the listing segment of the securities. The matrix in
Table 2 shows the accepted accounting standards for both the EU and non-EU issuers22.
EU issuer Non-EU issuer
Regulated Market Prime Standard IAS /IFRS23 IAS/IFRS or
equivalent
standard24
General Standard
Regulated
Unofficial Market
Entry Standard national GAAP or IAS
/IFRS
IAS/IFRS or
equivalent
standard25
First Quotation
Board
Table 2. Accepted accounting standards for both EU and non-EU issuers26.
The Committee of European Securities Regulators (CESR) recommended US GAAP
and Japanese GAAP equivalent to IFRS for use within the Community. Furthermore,
CESR recommended the acceptance of financial statements using GAAPs of China,
Canada, South Korea and India within the Community on a temporary basis, until no
longer than December 31 201127.
22 OJ L 243, 11.9.2002, p. 1-4 23 IFRSs encompass old International Accounting Standards (IASs) published by the predecessor
organization to the IASB, the International Accounting Standards Committee (IASC), as well as
official interpretations of the standards. 24 OJ L 337, 5.12.2006, p. 17-20 25 OJ L 340, 22.12.2007, p. 66-68 26 OJ L 340, 19.12.2008, p. 17-19 27 Geens and Hopt, 2011, p. 232-233
19
2.2.2 Admission requirements
Prospectus is the most important document for the admission to list in FWB. Besides,
there are other requirements the applicant must fulfill. The specific admission criteria
depend on the chosen listing segment. In addition, there are cases in which the
applicants might not be obligated to provide the prospectus. The details of the
additional requirements and the specific cases will be described in this section.
In principle the requirements are more stringent for the Regulated Market (General
Standard and Prime Standard) than the Regulated Unofficial Market (First Quotation
Board and Entry Standard). For instance, a prospectus is always required if an applicant
seeks the admission to the Regulated Market. Therefore, issuer might try to gain capital
through either initial public offering or private placement. In either case, a prospectus is
required. On the other hand, companies seeking admission to the Unofficial Market
face a less stringent requirement. In this case, a prospectus is only required in case of a
public offer. In the case of a private placement, the company is only required to submit
an issuer data form, which is an informational document containing only the very basic
data as to the issuer. Contrary to the prospectus, such an issuer data form is not an
offering circular, and needs only to be submitted to the Management Board of Deutsche
Börse AG instead of an approval by BaFin. Besides, companies might choose only to
list in the Regulated Unofficial Market without making an offer. Under such
circumstances, an issuer data form instead of a prospectus is required.
20
Another difference between the admission to the Regulated Market and the Regulated
Unofficial Market is the minimum reporting history of the applicant. Applicants
applying for admission to trade on the Regulated Market (both the General and the
Prime Standard) must have existed as an enterprise for at least three years28 (Section 3
(1) of the German Stock Exchange Admission Regulation). In contrast to that, there is
no such requirement to applicants seeking admission to trade in the First Quotation
Board. For the applicant applying to trade in the Entry Standard, it is only required to
submit the latest audited consolidated financial statements including the consolidated
management report (Section 13 (1) General Terms and Conditions for the Regulated
Unofficial Market)
Additionally, the requirements for the issuing volume, the initial free float and the
minimum market capitalization are also different for the Regulated Market and the
Regulated Unofficial Market. Companies applying for the Regulated Market are
required to issue a minimum of 10,000 shares29 (section 2 (3) of the German Stock
Exchange Admission Regulation) with an initial minimum free float of 25 percent
(section 9 (1) of the German Stock Exchange Admission Regulation). It is noticed that
the latter requirement might be exempted under certain circumstances (section 9 (2) of
the German Stock Exchange Admission Regulation). Besides, the market capitalization
must be at least EUR 1.25 million (section 2 (1) of the German Stock Exchange
28 Schmidt and Wülfert, 2010, p.174-175 29 Ibid.
21
Admission Regulation). On the other hand, the requirements for the companies
applying for the Regulated Unofficial Market (both First Quotation Board and Entry
Standard) are much less demanding. For example, there is no requirement with regard
to the minimum issuing shares and initial free float. The only requirement instead is that
at least 30 initial shareholders exist in order to ensure orderly trading in the stock
exchange (section 9 (7) of the General Terms and Conditions for the Regulated
Unofficial Market). The required minimum share capital, which is the nominal value of
the nominal values of all shares issued, is also much less: EUR 0.25 million which is
equal to one fifth of the minimum requirement in the case of the Regulated Market30.
Finally, the requirement for the applicant itself is different for admission to the
Regulated Market and the Regulated Unofficial Market. In the case of the Regulated
Market, the issuer of the securities must work together with a bank holding a German
banking license or a financial services institution. The issuer together with the bank
applies for listing in the General Standard or the Prime Standard (section 60 (1) of the
Exchange Rules of the Frankfurt Stock Exchange). This bank must be admitted to
participate in stock exchange trading on a German securities exchange and must have a
minimum equity capital of EUR 730,000 (section 60(1) of the Exchange Rules for the
Frankfurt Stock Exchange). On the other hand, inclusion in the Regulated Unofficial
Market requires an application for listing via the electronic application tool “E-listing
Open Market” filed by a trading participant with FWB (section 2(3) of the General
30 Deutsche Börse Listing Guide, Deutsche Börse AG, 2010, p. 25
22
Terms and Conditions for the Regulated Unofficial Market). The trading participant
acts as the applicant for the company, therefore, a contract does not exist between the
company and Deutsche Börse. Instead, a contract exists between the applicant and
Deutsche Börse. In the case of application for the Entry Standard, however, at least one
Deutsche Börse Listing Partner® has to be mandated by the issuer. They act as a capital
market coach and help the issuer in a range of areas, such as advice on legal aspects,
investor relations and corporate finance etc31.
By comparing the different aspects of the admission requirements it can be seen that the
Regulated Unofficial Market admission criteria are less strict than the Regulated
Market. The cost associated with the admission (cost of listing) into the Regulated
Unofficial Market is likely to be much lower than the admission into the Regulated
Market. Especially, the option of inclusion in the Regulated Unofficial Market without
a public offer can be a very attractive option for small-sized companies, which seek to
go public with minimum costs. However, it is noted that due to the less information
available of the companies, the investors perceive a higher risk for companies listed in
the Regulated Unofficial Market. This in turn increases the cost of raising capitals.
2.2.3 Follow-up obligations (Transparency requirements)
Once a company becomes a listed company it has to fulfill certain follow-up
31 Ibid. p. 29
23
obligations. This obligation ensures a certain degree of accountability and transparency
to investors. Similar to the admission requirements, the follow-up obligations also vary
depending on the listing segment. Generally speaking, the requirements are more
stringent for the Regulated Market than the Regulated Unofficial Market. Companies
listed in the Regulated Market must fulfill the highest European transparency
requirements. On top of that, companies listed in the Prime Standard are further
required to fulfill international transparency requirements. In comparison to the
Regulated Market, companies included in the Regulated Unofficial Market face with a
much less stringent formal requirement. First Quotation Board has the least formal
requirement for applicants. Applicants in the Entry Standard are required to comply
with further transparency obligations in addition. Table 3 lists the main requirements
for companies in different segments. The segments are arranged based on the level of
the strictness of the transparency requirements.
2.2.3.1 Regulated Unofficial Market
It can be seen that companies listed in the Regulated Unofficial Market have only to
comply with the insider trading (section 14 German Securities Trading Act) and the
market abuse regulations (section 20a German Securities Trading Act). According to
the above-mentioned regulations, any illegal use of insider information for profit in
financial trading or market abuse such as distorting the price-setting mechanism or
disseminating misleading information are strictly prohibited. The Trading Surveillance
24
Office (Handelsueberwachungsstelle) of Deutsche Börse and the State Exchange
Supervisory Authority (Hessisches Ministerium fuer Wirtschaft, Verkehr und
Landsentwicklung) together investigate and monitor alleged violations, and report their
findings to BaFin. Apart from the insider trading and market abuse requirements, the
issuers in the Regulated Unofficial Market must have an applicant at all time, who must
be a registered trading member of FWB (section 14 of the General Terms and
Conditions for the regulated Unofficial Market) 32.
As mentioned in the previous section, Entry Standard is essentially a sub-segment of
the Regulated Unofficial Market with additional transparency requirements. Therefore,
in addition to the aforementioned regulations, companies in this segment have to fulfill
following transparency requirements: first of all, companies are required to publish
either in English or German consolidated annual financial statements and half-year
interim reports (section 17 (2) General Terms and Conditions for the Regulated
Unofficial Market). The interim reports need not to be audited. However, the annual
financial reports must be audited according to National GAAP or IAS/IFRS. It is
worthwhile to point out that for non-EU issuers; the accounting standards accepted here
is slightly different as in the prospectus. National GAAP is also acceptable in this case,
while for the prospectus only IAS/IFRS or standards equivalent to IAS/IFRS are
accepted. Secondly, the issuer must disclose immediately on its website any facts, such
as capital increase and reduction, dividend payments, change of the management board
32 Kirby and Watson, 2003, p. 75
25
or supervisory board, important investments held by the issuer, which are likely to
influence significantly the price of the shares (section 17 (2) a) General Terms and
Conditions for the Regulated Unofficial Market). Thirdly, the issuer must publish and
update annually a brief company profile on its website, which includes a summary of
the trading data and public information about the company (section 17 (2) d) General
Terms and Conditions for the Regulated Unofficial Market). Finally, the issuer is
required to publish a corporate calendar on its website which include all important dates,
such as annual general meeting and presentations to analysts or investors (section 17 (2)
e) General Terms and Conditions for the Regulated Unofficial Market) 33.
The applicant of the Entry Standard issuer has the additional responsibility to monitor
the mentioned follow-up obligations. Failing to do so could induce sanctions. Besides,
a Listing Partner® of Deutsche Börse is mandated for any company in the Entry
Standard at all time. The main function of the Listing Partner® is to give advices to
Entry Standard issuers to ensure the additional transparency requirements are met34.
2.2.3.2 Regulated Market
Similarly to the Regulated Unofficial Market, companies in the Regulated Market are
prohibited from insider trading and market abuse. In addition, they are obliged to the
following transparency regulations: First of all, issuer of securities must publish annual
33 Deutsche Börse Listing Guide, Deutsche Börse AG, 2010, p. 66-69 34 ICap Ventures & Maverix Ventures. Going Public
26
financial reports, half-year financial reports and management interim statements
(section 37v German Securities Trading Act). For German issuers, the reports must be
in German and according to the IAS/IFRS. For international issuers, such as Chinese
companies, the report can be in English or German, and both IAS/IFS and IAS/IFRS
equivalent accounting standards (US GAAP, Canadian GAAP or Japanese GAAP) are
accepted (EU Regulation No. 1606/2002).
Secondly, companies have to follow the ad hoc disclosure rule (section 15 (1) German
Securities Trading Act). Under such a rule, any inside information, which directly
concerns the issuer and is likely to significantly influence the price of the securities,
must be disclosed. Unlike the Entry Standard, where issuers are only required to
publish such information on their websites, the issuers in the Regulated Markets must
notify the Management Board of FWB® Frankfurt WertpapierBörse and BaFin before
publishing such information (section 15 (4) German Securities Trading Act). For
example, the following ad hoc announcement is found on the website of Asian Bamboo
AG, which is listed Chinese company on the Regulated Market of FWB, regarding a
share buy-back program:
“The Management Board of Asian Bamboo AG today resolved to end the
share buyback program which began on 6 June 2011 and to begin a new
share buyback program under which the Company will buy back up to
27
300,000 ordinary shares of the Company35.”
In general, members of the issuer’s management board must disclose any trading
exceeding EUR 5,000 per annum to the issuer and BaFin within five working days.
This also applies to people closely related to them such as spouse/husband, partner and
children.
As an example, the following statements can be found on the DGAP (Die Deutsche
Gesellschaft für Ad-hoc-Publizität) about the directors’ dealing of Asian Bamboo AG
“Releases. Bamboo AG:
Details of the person subject to the disclosure requirement
Company: Green Resources Enterprise Holding Ltd.
Person performing managerial responsibilities, triggering the disclosure
requirement for the legal person
Details of the person performing managerial responsibilities
Position: Member of a managing body
Information about the transaction with duty of notification
35Ad-hoc announcement, Asian Bamboo AG. [Internet source]
28
Description of the financial instrument: share
ISIN/WKN of the financial instrument: DE000A0M6M79
Type of transaction: buy
Date: 21.06.2011
Price: 23.20
Currency: EUR
No. of items: 1000.00
Total amount traded: 23200.00
Place: XETRA Frankfurt/Main36”
In addition to the requirement to disclose any directors’ dealings the issuer is required
according to the section 21 (1) of the German Standard to also disclose the information
whenever the voting right reaches, exceeds or falls below certain thresholds. The
defined threshold of the voting rights includes 3, 5, 10, 15, 20, 25, 30, 50 and 75 percent.
According to the section 26 of the German Securities Trading Act the issuer is required
to disclose such information within three trading days.
As an example, the following statements concerning the voting rights are found on the
official website of Asian Bamboo AG, which is listed Chinese company on the
Regulated Market of FWB.
36 DGAP mbH, 2011, Directors' Dealings Notification of Asian Bamboo AG of 27 June 2011
29
“On 5 July 2011, GAM Holding AG, Zürich, Switzerland, has notified us
pursuant to section 21 para 1 WpHG that its voting rights in Asian Bamboo
AG have exceeded the threshold 3% of the voting rights on 30 June 2011 and
amounts to 3.03% as of that date (466,988 voting rights).
All 466,988 voting rights are attributed to GAM Holding AG pursuant to
section 22 para. 1 sent. 1 no. 6, sent. 2 WpHG37”
Finally, the German issuers in the Regulated Market are required to publish annually a
so-called Declaration of Conformity that the recommendations of the “Government
Commission German Corporate Governance Code” have been and will be complied
with (section 161 German Stock Corporation Act). For foreign issuers, the German
Corporate Governance Code might not necessarily be followed; however, they might
need to follow other corporate governance rules in their home country. However, for
both German and foreign issuers an annual document containing all information made
available in the previous 12 months by the issuer to the general public must be provided.
As an example the annual document for 2010 is published on the website of Asian
Bamboo AG38.
For issuers listed in the Prime Standard, additional follow-up obligations have to be
37 Asian Bamboo AG., 2011, Publication according to section 26 para 1 WpHG. 38 Annual documents, Asian Bamboo AG. [Internet Source]
30
followed. Regarding the publication of reports, the issuer in the Prime Standard is
required to publish a quarterly financial report, which is not needed for issuers in the
General Standard. Also the publication language for issuers in the Prime Standard is
slightly different: German issuers in Prime Standard have to report in both German and
English, while German issuers in General Standard are required to report only in
German. For international issuers in Prime Standard, the report must only be in English.
On the other hand, international issuers in General Standard can report either in English
or in German (section 3b (1) of the Securities Trading Reporting and Insider List
Ordinance and section 65 (1) and 66 (3) Exchange Rules for the Frankfurt Stock
Exchange).
Besides the publication of reports the issuers in the Prime Standard are also required to
hold at least one analyst conference a year (section 68 Exchange Rules for the Frankfurt
Stock Exchange). This allows the management to address analysts’ concerns efficiently
and promote the full disclosure by companies. Additionally, companies in the Prime
Standard must maintain a corporate calendar, which includes a corporate action
timetable concerning the most important date, such as the time and places of the annual
general meeting, events for analysts etc (section 67 Exchange Rules for the Frankfurt
Stock Exchange). In contrast to the companies in the General Standard, companies in
the Prime Standard are required to send the financial reports and the corporate calendar
to the Management Board of FWB in electronic form as a PDF file via the Exchange
Reporting System (ERS).
31
As a brief summary, Table 3 lists the main requirements for companies in different
segments. The segments are arranged based on the level of the strictness of the
transparency requirements39. It can be concluded that the First Quotation Board has the
least stringent requirements with regard to the follow-up obligations. Therefore, it
offers less transparency to the investors. However, since the companies are not required
to prepare financial reports, the cost of complying with transparency regulations is
significantly reduced. The Regulated Market offers a much better transparency to
investors since the highest European transparency requirements have to be met.
However, the preparation of half-year and quarterly financial reports and other
obligations such as analyst conferences induce significant costs. Medium or
small-sized companies might find it too costly to be listed in such segments.
39 Deutsche Börse, 2001,Shearman and Sterling, 2001
32
Table 3. Required follow-up obligations for different listing segments40.
40 Deutsche Börse Listing Guide, Deutsche Börse AG, 2010, p. 58-70
Entry Standard
Prime Standard The additional transparency requirements based on the statutory transparency regulations are listed as following: Quarterly financial statements are required A current corporate action timetable must be published
in the Internet Annually analyst conference must be arranged Publication language is English
General Standard
First Quotation
Board
The additional transparency requirements based on the applicable statutory provisions are listed as following: Publication of the audited consolidated financial
statements and management report (national accounting standards nat. GAAP or IFRS) no later than six months after the end of the reporting period
Publication of the interim report Publication of significant company news or
circumstances Publication of a brief up-to-date company profile and a
calendar of corporate actions
The applicable statutory provisions are listed as following: Market Abuse Directive Insider trading rules (WpHG) Provisions governing public offerings (WpPG, the
German Securities Prospectus Act)
The statutory transparency regulations for EU-regulated markets are listed as following: Publication of the audited annual and half-yearly
financial statements (IFRS, US GAAP, Canadian GAAP or Japanese GAAP)
Publication of the interim reports for Q1 and Q3 Publications of directors’ dealings (WpHG) Ad hoc disclosures (WpHG) Announcement of reporting thresholds (WpHG) Compulsory offer with change of control (WpÜG) The publication language is German
33
3. Chinese regulatory structures of overseas listing
In China, China Securities Regulatory Commission (“CSRC”) is the decision body of
the overseas listing. The regulatory system is based on the People’s Republic of China
Company Law (1993) and developed by the related regulations, rules and other
regulatory documents with the practice of the overseas listing of Chinese companies.
From the mid-1990’s, Chinese companies have generated two methods for overseas
listing under the domestic regulatory environment: direct overseas listing and indirect
overseas listing. Where a domestic enterprise directly or indirectly issues or lists any
securities abroad, it is subject to the CSRC’s approval according to the Article 238 of
Securities Law41.
Without the legal definition of these two concepts, direct overseas listing in practice is
the listing of shares by a joint-stocked limited company incorporated in the PRC
mainland. In contrast to that, indirect overseas listing in practice is the listing of
securities by a company registered outside People’s Republic of China Mainland,
which has acquired one or more domestic enterprises in the People’s Republic of
China Mainland. This kind of indirect overseas listing is also commonly known in
China as Red-chip listing42.
41 China securities regulatory commission, Annual report, 2007, p.27 42 Yi, 2010, p. 254-260
34
3.1 China’s regulatory framework for direct overseas listing
According to the “Notice on Issues Concerning the Application for Overseas Listing
by Enterprises43”, which is published by CSRC on July 14th, 1999, as the core
regulation for direct overseas listing, a Chinese company has to fulfill the following
criteria in order to gain approval by CSRC to list its shares or issue new shares abroad44:
First of all, it is required that the net assets of the company are not less than CNY 400
million (approximately EUR 44.5 million), and the profit after tax is not less than CNY
60 million (approximately EUR 6.7 million). The company must also exhibit
significant growth in both the net assets and the profit after tax. Secondly, the minimum
financing amount is USD 50 million, and the use of proceed must be compliant to the
domestic laws of People’s Republic of China. Thirdly, the company must have a stable
management board. Finally, the company must comply with the foreign exchange
control regulation of the People’s Republic of China, and must have reliable foreign
exchange to pay the interests and the dividends45.
It can be seen that the requirement for direct overseas listing is quite stringent.
Therefore, typically only large companies such as state-owned enterprises pursue such
a route to go public. In such cases, relevant approval regarding state-owned share
43 Promulgated in Zheng Jian Fa Xing Zi [1999] No. 83 by the CSRC on July 14, 1999. 44 China securities regulatory commission, China’s securities and futures markets, 2007, p.22-23 45 Hung, Wong and Zhang, 2011, p. 30-31
35
administration shall also be required.
3.2 China’s regulatory framework of indirect overseas listing
In contrast to the direct listing, where a company in China lists shares on an offshore
stock exchange, Chinese companies can also seek an indirect listing on a foreign stock
exchange by setting up an offshore venture (special purpose Vehicle Company)
overseas. Typically, such an offshore venture is chosen to be in one of the tax havens.
This offshore venture then goes for a foreign listing after acquiring domestic (China)
assets. In China, this type of indirect listing through an offshore venture is commonly
referred to as Red-Chip listing.
Both state-owned enterprises and the private-owned enterprises can do such an indirect
overseas listing. In the case of a state-owned enterprise, typically the onshore
state-owned group company sets up the offshore venture, which later acquires the
domestic target assets and is then used as the vehicle company for offshore listing. Such
a listing model is often called a “Grand Red-Chip” model. On the other hand, typically
for private-owned companies, the offshore vehicle company is set up by an individual
or a private entity. Such a listing model is often called a “Small Red-Chip” model.
Figure 1 shows the typical structure of the Grand Red-Chip and the Small Red-Chip
companies.
36
(a)
(b)
Figure 1. Typical structure of (a) Grand Red-Chip model (b) Small Red-Chip model (Reproduced from
“Road of Offshore IPO Of PRC Company”, Li Maochange, p.6-10)46.
Recently, due to the increasing number of indirect overseas listings, the Chinese
government has strengthened regulations on the establishment of special purpose
vehicle companies. According to the “Regulations on Acquisition of Domestic
Enterprises by Foreign Investors implemented as of September 8th, 2006” (New M&A
Rules)47, the relatively intensive requirements for indirect overseas listing are listed as
46 Li Maochange, 2007, p. 9-17 47 Regulations on Acquisition of Domestic Enterprises by Foreign Investors, Decree No.10 of Ministry
of Commerce in 2006
Group company
Offshore investors
Vehicle company (listing company)
Target assets
Onshore
Onshore
Offshore
PRC individual or Private entity
Offshore investors
Vehicl Company (listing company)
Target assets
Onshore
Onshore
Offshore
37
follows: The country or region where the special purpose company is listed shall have
a sound legal and regulatory system; the country or region where the special purpose
company is listed shall have signed a memorandum of understanding for supervision
cooperation with the securities supervision administration of the State Council and
keep an effective supervision cooperation (Art 40 of the New M&A Rules); the
domestic company with its equities listed abroad as mentioned in this Section must
show have a clear ownership and is free to any potential dispute over its property; the
domestic company whose shares are listed overseas must have a complete business
operation system and sufficient business scale to keep the business sustainable; the
domestic company whose shares are listed overseas must have a sound corporate
governance structure and internal management system; the company and its main
shareholders have no record of serious violation of any law or regulations in recent
three years (Art 41 New M&A Rules); Where a domestic company sets up a company
with special purpose abroad, it shall apply to the Ministry of Commerce (MOFCOM)
for going through the examination and approval formalities(Art 42 New M&A Rules);
If the Ministry of Commerce approves the documents as required in Article 44 of
these Regulations after preliminary examination, it shall issue a letter of principle
approval letter. The domestic company shall, by the principle approval, submit the
documents for listing application to the securities supervision administration of the
State Council (Art 45 New M&A Rules) 48.
48 Deutsche Börse AG., 2007, p. 47-49
38
A key difference of regulations nowadays as compared with regulations before 2006 is
that fairly stringent criteria have been introduced for the reorganizations of the home
company and the offshore special purpose vehicle company. Both MOFCOM and
CSRC approvals are required nowadays regarding the restructuring. Before 2006, the
CSRC did not have approval authority over such offshore listings49.
49 Deacons, 2007
39
4. Analysis of Chinese companies already listed in Germany
In this chapter, Chinese companies that have already listed in the Frankfurt Stock
Exchange are analyzed. Particularly, we have focused on the option these companies
have chosen to go public and the selected listing segment. Since the size of the
transaction is of special interests, therefore, we have made additional analysis of those
companies that have made either a public or a private offering. The insight obtained in
this chapter will serve as a basis for our analysis of the motivation of Chinese
companies listing in Germany.
4.1 Overview of all the Chinese companies listed on Frankfurt Stock
Exchange
In Table 4, all the Chinese companies currently listed on Frankfurt Stock Exchange are
shown. The date of the listing, the type of the transaction, the listing segment and the
sector of the companies are also given.
Company Type Date Transparency Level Sector
Shanghai Chengbang
Auto Accessories PLC
Listing/Introduction 2011-7-8 First Quotation Board Industrial
China Specialty Glass
AG
Public Offering 2011-7-1 Prime Standard Industrial
40
Company Type Date Transparency Level Sector
Yuxinlong International
Ltd.
Listing/Introduction 2011-7-1 First Quotation Board Real Estate
United Power
Technology AG
Public Offering 2011-6-10 Prime Standard Industrial
CSP China Steel PLC Listing/Introduction 2011-6-10 First Quotation Board Industrial
Orient Energy &
Logistics Holdings Ltd.
Listing/Introduction 2011-5-18 First Quotation Board Industrial
Powerland AG Public Offering 2011-4-11 Prime Standard Consumer
Zhihai Lighting
Technology Ltd.
Listing/Introduction 2011-2-11 First Quotation Board Consumer
Botaniex PLC Listing/Introduction 2010-12-14 First Quotation Board Biotechnology
China Bio-Fertilizer AG Private Placement 2010-12-10 Entry Standard Chemicals
Madison Property AG
Public Offering
(Transfer)
2010-12-6
First Quotation Board
Entry Standard
Real Estate
China Pyromedia Ltd. Listing/Introduction 2010-11-1 First Quotation Board Consumer
Evergreen Bamboo
International Ltd.
Listing/Introduction 2010-8-31 First Quotation Board Food & Beverage
KINGHERO AG Public Offering 2010-8-6 Entry Standard Consumer
China Zongbao Clean
Tech Ltd.
Listing/Introduction 2010-7-28 First Quotation Board Chemicals
41
Company Type Date Transparency Level Sector
Cheung Wing
Biotechnology
Company Ltd.
Listing/Introduction 2010-7-9 First Quotation Board Biotechnology
Euro Asia Premier Real
Estate Company
Limited
Public Offering 2010-5-26 Entry Standard Real Estate
High Win PLC Inc. Listing/Introduction 2010-4-8 First Quotation Board Furniture
Joyou AG Public Offering 2010-3-30 Prime Standard Consumer / Household
Initation Enterprises
Co., Ltd.
Listing/Introduction 2009-11-9 First Quotation Board Automobile
Vtion Wireless
Technology AG
Public Offering 2009-10-1 Prime Standard Technology /
Communication
Technology
Business Media China
AG
Public Offering
(Transfer)
2009-9-9 Prime Standard
General Standard
Media
CFQ Holding AG Listing/Introduction 2009-1-14 First Quotation Board Industrial
Classic Dream
Properties Ltd.
Listing/Introduction
(transfer)
2008-10-15 First Quotation Board
Entry Standard
Real Estate
Sino European
Biotechnology AG
Listing/Introduction 2008-8-19 First Quotation Board Biotechnology
Shigo Asia AG Listing/Introduction 2008-6-5 Entry Standard Consumer / Household
42
Company Type Date Transparency Level Sector
Nitestar Holding N. V. Listing/Introduction 2008-3-28 First Quotation Board Traffic Safety Products
EcoInvest Holding N.V. Listing/Introduction 2008-1-9 First Quotation Board Renewable Energy
Greater China Precision
Components Ltd.
Public Offering 2007-11-20 Entry Standard Industrial
Asian Bamboo AG Public Offering 2007-11-16 Prime Standard Basic Resources / Forest
& Paper Products
ZhongDe Waste
Technology AG
Public Offering 2007-7-6 Prime Standard Industrial / Industrial
Products & Services
Sino International
Logistic Co. N.V.
Listing/Introduction 2007-5-31 First Quotation Board Financial Services
UFC Holding N.V. Listing/Introduction 2007-4-27 First Quotation Board Financial Services
Gongyou Machines Ltd. Listing/Introduction 2007-3-30 First Quotation Board Machinery
Table 4. Overview of all the Chinese companies listed on Frankfurt Stock Exchange (Reproduced from
“Chinese Listings”, Deutsche Börse AG) 50.
In Figure 2 (a), the history of the Chinese companies listed on Frankfurt Stock
Exchange is shown. It can be seen that only until recently (2007) Chinese companies
have started to list on Frankfurt Stock Exchange, however, the number of Chinese
companies listed in Germany is increasing very rapidly. In Figure 2 (b) the number of
other foreign companies listed on Frankfurt Stock Exchange is compared with the
number of Chinese companies from the year 2007 to 2010. It is observed that the
50 Chinese Listings, Deutsche Börse AG [Internet Source]
43
number of foreign country listings is steadily decreasing. Contrary to that, Chinese
companies seem to become more interested in listing in Germany.
(a)
(b)
Figure 2. (a) History of Chinese companies listed on Frankfurt Stock Exchange. (b) Comparison of the
number of other foreign companies and the number of Chinese companies listed on Frankfurt Stock
Exchange.51
51 Number of listed companies, World federation of exchanges [Internet source]
44
In Figure 3 an overview is given about the sectors of the Chinese companies listed in
Germany. It can be seen that Chinese companies listed in Germany cover a wide range
of sectors. The proportion of the Industrial sector is the biggest. It is not observed that
companies in a specific sector are particularly interested in listing in Germany.52
Figure 3. Overview of Chinese companies listed on Frankfurt Stock Exchange by sectors
In Figure 4 the type of transactions of all Chinese companies listed on Frankfurt Stock
Exchange are compared. It is observed that the majority of the companies have chosen
only to list and introduce its shares on the market without making either a public or a
private offering. Among the companies which have made offerings, only one Chinese
company has opted to raise capital through a private placement. The rest of the
companies have decided to make a public offering.
52 Note: Business Media China AG did not have any Chinese shareholders when it was established
with completely different business scope and different name.
45
Figure 4. Overview of the different options Chinese companies have chosen to list on Frankfurt Stock
Exchange
In Figure 5 the current listing segments of all Chinese companies are compared. It is
shown that about 76 percent of Chinese companies have chosen to list on the Regulated
Unofficial Market. Compared to the Entry Standard, the First Quotation Board, which
has less requirements for admission, is much more popular among those Chinese
companies.
It is also observed that once a Chinese company has decided to list on the Regulated
Market, it opts to choose the Prime Standard instead of the General standard. Currently,
only one Chinese company (Business Media China AG) is listed in the General
Standard. Even this company had been once in the Prime Standard, and was
downgraded to the General Standard later. Among the listed Chinese companies on
Frankfurt Stock Exchange, it can be stated that if companies accept the expenditure
involved in the regulated market, they may in the most of the cases be prepared to
46
accept the additional requirements of the Prime Standard. The detailed requirements
can be found in the previous chapter. It is speculated that firms which ‘downgrade’
from the Prime Standard to the General Standard frequently choose to do so because
they may in a financial difficulty or they simply want to save costs53.
Figure 5. Overview of the listing segment of Frankfurt Stock Exchange Chinese companies have chosen
A similar picture can be observed not only for Chinese companies but for all the
companies that have listed on Frankfurt Stock Exchange from 2006. Most of the
listings occur in the First Quotation Board, Table 5 summarizes the total listings on
Frankfurt Stock Exchange in 2009 and 2010, where this trend is clearly shown.
53 Beyer, Schikora and Dibelius, 2010, p. 86
47
2010 2009
Stock exchange IPOS Offering
value(EUR
m)
IPOS Offering
value(EUR
m)
Deutsche Börse(EU-regulated) 10 2,297 1 48
Deutsche Börse(Entry Standard) 13 116 4 5
First Quotation Board(FQB) 151 50 53 46
Germany total 174 2,463 58 53
Table 5. Overview of the total listings on Frankfurt Stock Exchange in 2009 and 2010 (Reproduced from
“IPO Watch Europe Review of 2010”, PWC, p. 14)54.
Actually, the First Quotation Board was the Deutsche Börse’s response to the
increasing number of initial listings on the Regulated Unofficial Market. Since 2005
companies have increasingly been using the First Quotation Board as a forum for
offering their shares for trading without being required to meet any continuing
obligations. The majority of companies listed on the First Quotation Board are from
outside Germany.
Since the admission requirements and the follow-up regulations are relatively few for
trading in the First Quotation Board, it has attracted most of all medium and small-sized
companies. And since many of those companies seek admissions only without making
a public offering, the volume of the total capital raised is small. This is clearly seen in
Table 5: despite the large number of listings, the total offering values are very low. On
the other hand, the trend in the EU-regulated markets is reversed: the volume of IPOs is
very large, even though the number of the IPOs is fewer.
54 PWC, 2010, p.14
48
4.2 Analysis of public offerings of Chinese companies
As discussed in the previous section, most of Chinese companies choose to go public by
listing in the First Quotation Board. This has been chosen since it is the most
cost-efficient way to become a public company. An introduction into the non-regulated
market can be achieved within a few days by a short non-public issuer data form filed
with the Frankfurt Stock Exchange55, which does not result in a public offering
(Section 2 (4) Securities Trading Act) whereas in the case of a public offering in
Germany, a securities prospectus has to be published after approval of BaFin (Section
1 Securities Trading Act) 56.
It is due to exact this reason, that most of Chinese companies listed on the First
Quoatation Board have not published a prospectus. Therefore, it is very difficult to
collect information of these companies such as the share structure , the structure of the
management and supervisory board and the group structure. In the following we have
only focused on the companies that have made public offerings, and the prospectus of
each company is studied. More specifically, the following data are extracted and
analyzed from the prospectus：1. the size of the offering (the total capital stock and free
float); 2. the governing bodies of the company, i.e. the members of management board
and supervisory board; 3. General information on the company i.e. the group structure
55 Open Market Circular No. 10/09 relating to the Issuer Data Form (previously „Exposé“) of 25 June
2009. 56 Herber and Claus, 2010
49
of Chinese companies.
4.2.1 Data of offered shares
12 Chinese companies have made public offerings on Frankfurt Stock Exchange. The
prospectuses of offerings have been studied. The key data regarding the public
offerings, including the placement volume and the free float, are summarized in Table 6.
The issuing price as well as the current price (of the day 1st July, 2010) of the shares is
also included.
50
C
ompa
ny
Tra
nspa
renc
y
Lev
el
Issu
ing
Pri
ce
(EU
R )
Fir
st p
rice
(E
UR
)
Las
t Pri
ce o
f th
e
day
01/0
7/20
11
Plac
emen
t
volu
me
(Mio
.
Plac
emen
t
volu
me
incl
.
Gre
ensh
oe
Free
flo
at
(wit
hout
exe
rcis
e
Tot
al C
apit
al
Sto
ck (
EU
R )
Madison Property AG Entry Standard 26 26.5 17.15 4.927 189,500 14.11% 3,689,500
KINGHERO AG Entry Standard 15 15 20.07 15 1,000,000 30.90% 6,125,000
Euro Asia Premier
Real Estate Company
Limited
Entry Standard 5 5.5 6.55 6 1,200,000 9.10% 11,200,000
Greater China
Precision
Components Ltd.
Entry Standard 3.8 3.1 0.61 28.5 8,250,000 27.30% 27,875,000
Business Media
China AG
General
Standard
22 14.7 2.85 31.35 1,250,000 57.40% 2,000,000
China Specialty Glass
AG
Prime
Standard
9 9 7.85 23.85 2,650,000 28.50% 15,050,000
United Power
Technology AG
Prime
Standard
9 9.1 8.037 20.7 2,300,000 35.06% 12,300,000
Powerland AG Prime
Standard
15 16.5 14.38 94.9 6,325,000 36.67% 15,000,000
Joyou AG Prime
Standard
13 14.75 12.565 104.65 8,050,000 29.20% 23,967,492
Vtion Wireless
Technology AG
Prime
Standard
10.75 10.75 4.039 55.6 5,175,000 28.20% 15,980,000
Asian Bamboo AG Prime
Standard
17 18.1 27.03 82.6 4,858,000 38.10% 12,750,000
ZhongDe Waste
Technology AG
Prime
Standard
26 30 9.101 108.82 4,185,264 28.00% 13,000,000
Table 6. Overview of the offerings made by Chinese companies listed on Frankfurt Stock Exchange
(Reproduced from “Chinese Listings”, Deutsche Börse AG)57
The placement volume is one of the most important data for a public offering. Basically,
it describes how much capital the company intends to raise through the transaction. The
companies listed in the General Standard and the Prime Standard should have a
57 Chinese Listings, Deutsche Börse AG [Internet Source], The prospectus of 12 public offering Chinese
companies in Frankfurt Stock Exchange
51
minimum placement volume at least EUR 1.25 million (section 2 (1) of the German
Stock Exchange Admission Regulation). In Figure 6, the placement volumes of all
public offerings by Chinese companies are compared. It can be observed that the
average placement volume of the companies in the Prime Standard and General
Standard is much higher than the companies in the Entry Standard. This is most likely
related to the size of the company.
Figure 6. Overview of the placement volumes of the offering by Chinese companies listed on Frankfurt
Stock Exchange.
Another key value is the free float, which describes the proportion of shares that are
held by investors who are likely to trade. This is a measure of how many shares are
reasonably liquid. According to section 9 (1) of the German Stock Exchange
Admission Regulation an initial minimum free float of 25 percent is required for
companies making a public offer in the Regulated Market. In contrast to that, issuers in
52
the Entry Standard and the First Quotation Board are not bound by such rule. In Figure
7, the free floats of all the public offerings by Chinese companies are compared. It can
be seen that the average free float of IPOs in the Prime Standard is around 30 to 35%,
which is slightly higher than the minimum requirement of the German Stock Exchange
Regulation. The free float of IPOs in the Entry Standard is in general smaller, with an
average value of about 20%. Half of the IPOs in the Entry Standard have a free float
below 25% percent.
Figure 7. Overview of the free float of the Chinses companies on Frankfurt Stock Exchange at the time of
the offering.
As a short summary it can be stated that Chinese issuers in the Prime Standard raise
significantly more capital through an IPO than those issuers in the Entry Standard. Also
the minimal free float requirement ensures that shares of the companies in the Prime
and General Standard have a potentially a higher liquidity than the shares issued in the
53
Entry Standard.
4.2.2 Group structure
The group structure of the 12 Chinese companies that have issued shares on Frankfurt
Stock has been examined. It has been found out that all the Chinese companies have
chosen the option of an indirect overseas listing as explained in the previous chapter.
This is most likely due to the very strict regulations of China regarding direct overseas
listing discussed in previous chapter.
In Figure 8 the group structure of United Power Technolgy AG is shown. The group
structure of other Chinese companies listed in Germany can be found in the appendix.
The example chosen represents a typcial group structure of most Chinese companies
listed in Germany. United Power Technology AG is a stock corporation under German
law, which is the ultimate holding company. The HK United Power Equipment Co., Ltd.
Is an intermediate holding company based in Hong Kong for tax purpose. HK United
Power Equipment Co., Ltd. Is then the sole shareholder of United Power Equipment
Co., Ltd., which is the operating company based in China.
This structure falls into the “Small Red Chip” model explained in previous chapter. It is
seen that two holding companies are set up offshore in order to avoid the strict direct
overseas listing regulations in China. The location of the ultimate holding company
54
United Power Technology AG is chosen in Germany to be close to potential investors.
Figure 8. The group structure of United Power Technology AG. (Reproduced from “Securities
Prospectus”, United Power Technology AG, p.269)58
9 out of 12 Chinese companies that have been investigated have similar group
structures as the one shown in Figure 8. In all those cases, intemediate and ultimate
holding companies are set up in both Hong Kong and Germany. One Chinese company
has set up intemediate and ultimate holding companies in British Vrigin Island and
Germany. One Chinese company has chosen to set up the holding company in British
Virgin Island. In the last case, the holding company is set up in Singapore.
It can be stated that Chinese companies which have done IPOs in Germany have all
chosen to issue shares through a special purpose vehicle company. In most of the cases
the ultimate holding company, which issues shares are chosen to be located in Germany
to be near to potential investors.
58 United Power Technology AG, 2011, p.269
United Power Technology AG
HK United Power Equipment Co., Ltd.
United Power Equipment Co., Ltd.
Germany
China (PRC)
Hong Kong
55
4.2.3 Structure of management and supervisory boards
Companies that want to raise capital by issuing shares have to disclose business risks to
potential investors in the prospectus. Typically, a dedicated section in the prospectus
describes various risks related to the operation of the company. It is noticed that in
almost all the prospectus of Chinese issuers, it is mentioned that the companies are not
experienced with the German legal requirements for listed companies, which might
have adverse effects on the company in return. This is a specific risk factor that is
closely related to the location of the listing.
As an example, the following statements are found in the prospectus of Asian Bamboo
AG:
“Asian Bamboo Group has no experience in complying with German legal
requirements. None of the members of the Management Board of the
Company speaks German. Asian Bamboo Group has until recently operated
as a private Chinese company and maintains a small finance and
accounting staff. Asian Bamboo Group is therefore not experienced in
dealing with increased legal, accounting, transparency and administrative
requirements imposed on a publicly listed company in Germany. The
obligation to comply with the German corporate governance requirements,
56
the shift from the application of Chinese generally accepted accounting
principles to internationally accepted accounting standards and the
requirement to publish ad-hoc information, quarterly reports and to comply
with various other reporting, notification and publication obligations
resulting from the listing of the Company’s shares will put increased
demand on the compliance, finance and accounting departments. If Asian
Bamboo Group fails to comply with such obligations it faces as a publicly
listed company or fails to timely issue complete and correct financial
reports and accounts, such actions could have material adverse effects on
the business, financial condition, and results of operations of Asian Bamboo
Group59.”
Such risk can be somewhat reduced if certain members of the Supervisory Board reside
in Germany and are familiar with the German legal requirements. However, another
problem arises, that due to the physical distance of the Supervisory Board members and
the operation of the business (the Management Board members typically reside in
China close to the operation of the business) it becomes more difficult for the
Supervisory Board to fulfil their supervisory duties. As an example, the following
statements are found in the prospectus of Powerland AG:
“The members of the Supervisory Board residing outside of China may
59 Asian Bamboo AG, 2007, p.45-46
57
have difficulties in fulfilling their statutory supervisory duties vis-à-vis the
management residing in China as a result of the physical distance to China
and, with regard to the German members of the Supervisory Board,
language barriers60.”
On the other hand, the non-German members of the Supervisory Board might not be
familiar to the obligations to fulfill their statutory supervisory duties. The following
statements are from the prospectus of Powerland AG:
“The Company’s Supervisory Board may have difficulties in adequately
supervising the Management Board; in particular as the non-German
members of the Supervisory Board have only limited experience in fulfilling
their obligations arising from the German Stock Corporation Act61.”
Due to the nature of the overseas listing, it is inevitable that the Management Board is
physically away from the venue of the listing. This can be seen in Figure 8. It is found
out that the members of the Management Board of those Chinese companies listed in
Germany come almost exlusively from China. We believe that the best way to minimize
the risk of ineffective supervisory of Chinese companies is to choose a Supervisory
Board with a balanced mixture of German and Chinese members. This has already been
60 Powerland AG, 2011, p.46 61 Ibid.
58
done by many of the Chinese companies listed in Germany as shown in Table 7.
Ideally, both the German and Chinese members should have adequate knowledge about
legal requirements of the other country. Also the Supervisory Board should keep a close
tie to the business operation in China to ensure all documents required to inspect and
examine the books and the records of the company are available.
Company Management Board Supervisory Board
China Specialty Glass AG62 Nang Heung Sze China Helmut Meyer Germany
Chun Li Shi China Xin Yong Shi China
Chi-Hsiang Michael
Lee
China Volker Schlegel Germany
United Power Technology AG63 Xu Wu China Wei Song China
Zhongdong Huang China Hubertus Krossa Germany
Oliver Kuan China Ning Cong China
Powerland AG64 Shunyuan Guo China Peter Diesch Germany
Yong Liang Guo China Volker Potthoff Germany
Hock Soon Gan Malaysia Hsueh Yi Huang China
Qingsheng Cai China
62 China Specialty Glass AG, 2011, p.295-307 63 United Power Technology AG, 2011, p.293-310 64 Powerland AG, 2011, p.157-165
59
Company Management Board Supervisory Board
Madison Property AG65 Qingtong Tian China Andreas Grosjean Germany
Zaisheng Wei China Oliver Kuan China
Yi (Alex) Yuan China Yongting Hou China
KINGHERO AG66 Zhang Yu China Marcus Wenzel Germany
He Xiuming China Dr. Christoph
Dylla
Germany
Xiaoping
Zhao-Moll
China Chen Xiaofeng China
Euro Asia Premier Real Estate Company
Limited67
Xiyi Sun China
Patrick P.L. Chan China
Zhu Ming Hao Alan China
Joyou AG68 Jianshe Cai China Dr. Rainer Simon Germany
Jilin Cai China Chen Johnny US
Gang Zheng China Wang Wei China
Zufang Li China
65 Madison Property AG, 2010, p.181-187 66 KINGHERO AG,2010, p.200-209 67 Euro Asia Premier Real Estate Company Limited, 2010, p.142-145 68 Joyou AG, 2010, 177-184
60
Company Management Board Supervisory Board
Vtion Wireless Technology AG69 Guoping Chen China Yingyi Qian China
Zhihong He China Norbert Quinkert Germany
Huan Chen China Hua Yang China
Ping Fei China Yangsheng Liu China
Chaojie Ding China Ning Wang China
Volker Potthoff Germany
Business Media China AG70 Klaus M. Hilligardt Germany Wolfgang
Schellkes
Germany
Yang Yang Li China Henning Moeller Swiss
Peter Sassmann Germany Wolfram Diener Germany
Greater China Precision Components
Ltd.71
Wu Baofa China
Wu Baoyu China
Jia Yufang China
Mao Julin China
Ang Kheng Hui Singapore
Chen Daorong China
Tay Kok Soon Singapore
69 Vtion Wireless Technology AG, 2009, p.151-160 70 Business Media China AG, 2008, p.84-93 71 Greater China Precision Components Ltd., 2007, p.174-177
61
Company Management Board Supervisory Board
Asian Bamboo AG72 Lin Zuojun China Hans-Joachim
Zwarg
Germany
Jiang Haiyan China Wolfgang Jensen Germany
Chan Wai-Leung China Pan Chaoran China
ZhongDe Waste Technology AG73 Chen Zefeng China Hans-Joachim
Zwarg
Germany
Lin Na China Joachim Ronge Germany
Quan Hao China
Table 7. The management and the supervisory board of the Chinese companies listed on Frankfurt Stock
Exchange and the nationalities of the board members
72 Asian Bamboo AG, 2007, p.131-136 73 ZhongDe Waste Technology AG, 2007, p.138-145
62
5. Motivations of Chinese companies listing in Germany
In the previous chapter it has been shown that Chinese companies are becoming
increasingly interested in listing in Germany in recent years. In this chapter we try to
discuss shortly the motivations of the Chinese companies to list in Germany. In the
first part of the chapter several popular hypothesis of overseas listing from literatures
are introduced. We also give our view on whether these hypotheses might possibly
explain the motivations of the observed increasing listing of Chinese companies in
Germany. In the second part of the chapter, the different listing venues are compared.
It seems that Germany is a more favored location, especially for those medium and
small-sized companies, due to its relatively low cost of listing.
5.1 Reasons of overseas listings
5.1.1 Market segmentation hypothesis
In a frictionless market where investors hold the world market portfolio, the demand
and supply of capital is indifferent to trading venues. However, frictions do exist for
cross-border investment as a result of regulatory restrictions, or simply the lack of
knowledge about a security74. According to Merton, removing the barriers would
increase the size of a firm’s investor base. As a result, it allows for more efficient
74 Bianconi and Tan, 2010
63
diversification. Therefore, the firm’s stock price will rise and the cost of capital will
decline75.
This hypothesis has been used to as a possible explanation why companies sometimes
choose to list on a foreign exchange. In order to achieve better visibility, firms often
cross-list their shares in a foreign exchange in addition to the domestic exchange.
In the case of the oversea listings of Chinese companies on Frankfurt Stock Exchange,
none of the companies have previously listed its share in the domestic exchange.
Instead of the so-called cross-listing, they have chosen Germany as the location to go
public. Therefore, we believe that expanding the investor base is not the main reason
for those Chinese companies which have chosen to list on Frankfurt Stock Exchange.
5.2.2 Information environment hypothesis (Signaling effect)
Under the so-called information environment hypothesis76, it is assumed that some
form of information asymmetry or market incompleteness exists, and different listing
countries have different disclosure requirements. A firm might choose to list on an
overseas exchange with more stringent disclosure requirement regime than that of the
home country. By doing so, it signals to the investors that they are high-value firms
75 Merton, 1987 76 Cantale, 1998
64
and have better prospects than others77. Therefore, it is also often referred to as
signaling effect78.
From Figure 579 it can be observed that about 76% percent of the Chinese companies
which have already listed on Frankfurt Stock Exchange chose to list on the Regulated
Unofficial Market, which does not have a very stringent disclosure requirement.
Therefore, it is quite unlikely that these companies’ decision to list in Germany is
motivated by the so-called signaling effect. On the other hand, among the rest of the
Chinese companies already listed on Frankfurt Stock Exchange, almost all of them
have opted to choose the Prime Standard, which is the highest EU Standard with the
most stringent disclosure requirement regime. For these companies, it is quite likely
that they are trying to demonstrate to potential investors of their good prospects by
fulfilling the highest disclosure requirement.
5.2.3 Cost of listing
Another important factor firms have to consider when deciding to go public is the
costs that it incurs. The cost of going public includes the IPO underwriting fees the
firm has to pay for the underwriters, fees paid to lawyers and auditors and the
expenses of the advertising and so on. Also, the firm has to consider the cost of being
77 Moel, 1999 78 Fuerst, 1998 79 P.46
65
a public company. This includes the fees to the layers and auditors to prepare the
required financial reports and the expenses to fulfill all the other transparency
requirements. Also during the procedure of going public the firm might require
approval from different authorities. This can also be lengthy and costly. Finally, the
firm has to weigh the benefit from being a public company against all these cost
incurred. Sometimes, firms find it more attractive to list on a foreign exchange rather
than the home exchange simply due to the reason of lower cost.
5.2 Comparison of listing venues
In this section the regulatory requirements, the cost and liquidity of different listing
venues are compared based on a review of literatures. The results suggest the
Frankfurt Stock Exchange is very attractive to those companies that are sensitive to
the costs associated with listing.
5.2.1 Regulatory requirements
In this section the procedures of listing on Frankfurt Stock Exchange, Hong Kong
Stock exchange and the Shanghai Stock Exchange are compared. In Table 8, it can be
seen that the approving procedure in China is much more complicated than in
Germany and Hong Kong. In Germany, the listing only needs to be approved by the
Federal Financial Supervisory Authority (BaFin) and the Managing Board of the
Frankfurt Stock Exchange. In Hong Kong, the listing has to be approved by the China
66
Securities Regulatory Commission （CSRC） and the Hong Kong Exchanges and Clearing
Limited. However, in China, before the request can be approved, CSRC must consult the
National Development and Reform Commission, and the listing must be agreed by the
Provincial People’s government. In case of the issuers from some special industry80, the
consent of relevant administrative departments must be obtained.
The complexity of the procedure is also partially reflected by the duration of the
approval procedure. In Germany, the approval typically takes five to nine weeks; in
Hong Kong, the approval typically takes five to seven months; In contrast to that, the
procedure can take up to more than one year in China.
Items Deutsche Börse Hong Kong Stock Exchange
Shanghai Stock Exchange
Approving
Authority
- Federal Financial
Supervisory
Authority (“BaFin“)
- Deutsche
Börse/Managing Board of
the Frankfurt Stock
Exchange
- China Securities
Regulatory
Commission
(“CSRC”)
- Hong Kong
Exchanges and
Clearing Limited
(“HKEx”)
China Securities
Regulatory Commission
(“CSRC”)
80 Note: Special industry sectors including financial industry, telecom industry, real estate sector.
67
Items Deutsche Börse Hong Kong Stock Exchange
Shanghai Stock Exchange
Approving
Procedures
- Project presentation at an
early stage, agreement on
time table
- Submission of
prospectus to BaFin
- Review of prospectus by
BaFin and making of
amendments requested by
BaFin
- For EU Regulated
Market: filing the
application for admission
to the Management Board
of the stock exchange
together with a bank or
financial services
institution that is approved
for trading on a German
exchange
- For Exchange Regulated
Markets: inclusion
applications filed via the
electronic application tool
“E-listing Open Market”
- Application for
listing on the
Exchange
- Documentary
submissions
- Hearing by Listing
Committee
- Issue of prospectus
& formal notice
- Dealings in shares
commences
- Application for listing
to the CSRC on the
recommendation of
Issuer’s Sponsor,
provision of opinions of
the relevant
administrative
department in case of
issuer of special industry
- Decision on the
acceptance by the CSRC
- Preliminary
examination by the
relevant functionary
department
- Examination by the
Verification Committee
- Inquiry about the
agreement of the
Provincial People’s
Government
- Inquiry about the
opinions of the National
Development and
Reform Commission
- Decision on Issuer’s
application and provision
of the relevant approval
document by the CSRC
Approving
Timing
Five to nine weeks Five to seven months Five to twelve months
Table 8. Comparison of Listing on the Frankfurt Stock Exchange, the Hong Kong Stock Exchange and
Mainland China (Reproduced from “How to become listed in Germany, Hong Kong and Mainland
China”, Mayer Brown LLP, p. 8-10) 81
81 Mayer Brown LLP, 2010, p. 8-10
68
5.2.2 Cost and liquidity
In an independent study the attractiveness of various listing venues has been
evaluated82. The main goal of the study was to analyze how much it costs a company
to go public. In this study the direct costs, such as the initial total floatation costs, the
admission fees and the ongoing listing fees of major stock exchanges have been
compared. In addition, the liquidity of the major stock exchanges, this can be seen as
indirect costs for firms listed in the exchange are compared. This has been done by
comparing the bid-offer spread, the zero-trade ratio, the turnover velocity and the
stock return volatility of the securities listed in the exchange. A score was given in
each of the above-mentioned category for various exchanges: 1 = very good, 2= good,
3 = satisfactory, 4 = bad, 5 = very bad. The main result can be summarized in Table 9.
82 Kaserer and Schiereck, 2007, p.54-55
69
Main
Markets
Bid-offer spread
Trade V
ol./Market V
ol.
Volatility
Zero-T
rade Ratio
Total flotation cost
Underw
riting fees
Listing fees
Fees
Overall score
FWB 2 2 3 1 3 3 1 1 2.0
HKSE 3 3 3 5 3 2 1 3 2.9
NYSE 1 3 3 3 3 3 4 4 3.0
Euronext 3 5 3 3 2 3 5 1 3.1
LSE 5 3 3 5 3 2 5 1 3.4
NASDAQ 3 3 4 2 3 5 3 5 3.5
Alternative
Market
FWB 2 1 3 1 3 3 1 1 1.9
HKSE 1 1 2 1 3 3 5 5 2.6
NYSE 4 5 3 1 2 3 3 1 2.8
Euronext 1 1 3 1 3 5 5 5 3.0
LSE 5 5 3 5 4 2 1 2 3.4
NASDAQ 4 4 3 5 5 3 1 3 3.5
Table 9. Ranking of the main and alternative markets of major stock exchanges (Reproduced from
“Going Public and Being Public-A Global Comparison of the Impact of the Listing Decision on the
Cost of Capital”, Kaserer and Schiereck, p.54-55)83.
83 Ibid.
70
It can be seen from Table 9 that both the cost associated with listing on the Frankfurt
Stock Exchange is relatively low compared to other major stock exchanges. Even
though some stock exchanges, such as HKSE are also comparable to Frankfurt Stock
Exchange in terms of direct cost, the liquidity of the securities in HKSE is much
worse than Frankfurt Stock Exchange. The result suggests that Frankfurt Stock
Exchange to be a very attractive venue for companies, especially those which are very
sensitive to the costs, seeking to go public.
The results from the study might partially explain why the Frankfurt Stock Exchange
has seen an increasing number of Chinese companies especially in the Regulated
Unofficial Market. These companies, which mostly are medium or small-sized
companies, might have chosen Germany as the listing venue simply due to the low
costs and the relatively simple approval procedure.
71
6. Conclusion
Recently an increasing number of Chinese companies have listed their shares on the
Frankfurt Stock Exchange. Such kind of overseas listing might be troublesome due to
the fact that the issuer is not familiar with the local regulatory requirements. In this
thesis we have described in detail the listing segments of the Frankfurt Stock
Exchange. The admission requirements and the follow-up obligations of companies
listed in each segments are explained in detail. From the discussion it is concluded
that the Regulated Unofficial Market, which is a non-EU regulated market, can be
very attractive to medium and small-sized companies due to its less stringent
admission requirements. We have particularly analyzed those Chinese companies
already listed on Frankfurt Stock Exchange with a focus on their choice of listing
segments. It can be seen that most of the Chinese companies have opted for the First
Quotation Board, which has the least stringent admission requirement. Besides, most
of the companies have chosen not to make a public offering, so that they are exempted
from submitting a prospectus to the German Federal Financial Supervisory Authority
for approval, and become public companies in a most cost-efficient way. It is
therefore postulated that most of the Chinese companies have chosen Germany as the
venue to go public in order to minimize the cost of listing. Recently, several fraud
cases have been found involving Chinese companies listed in NASDAQ, Investors are
thus becoming more cautious when investing in Chinese companies. Even though the
72
minimum transparency requirements are less stringent in the non-EU regulated market,
Chinese issuers might find it beneficial to provide additional information regarding
the status of the company in order to attract potential investors.
73
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Appendix
The group structure of Chinese issuers on Frankfurt Stock Exchange
China Specialty Glass AG
United Power Technology AG
China Specialty Glass AG
Hing Wah Holding (Hong Kong) Ltd
Guangzhou Hing Wah Glass Industry Co., Ltd.
Germany
China (PRC)
Hong Kong
Sichuan Hing Wah Glass Co., Ltd.
United Power Technology AG
HK United Power Equipment Co., Ltd.
United Power Equipment Co., Ltd.
Germany
China (PRC)
Hong Kong
82
Powerland AG
Madison Property AG
Limited Partnership
Powerland Hong Kong
Powerland Fujian
Germany
China (PRC)
Hong Kong
Hong Kong Holding Hong Kong
Powerland AG
Powerland Guangzhou
Madison Property AG
Madison Property Group Limited
Qingdao Madison Group Comapny Limited
Germany
China (PRC)
Hong Kong
83
KINGHERO AG
Euro Asia Premier Real Estate Company Limited
KINGHERO AG
Kinghero Group Holdings Limited
Xiamen Michelle Fashion Co., Ltd.
Germany
China (PRC)
Hong Kong
Kinghero Fashion (Xiamen) Co., Ltd.
NIW Real Estate
Euro Asia Premier Real Estate Company Limited
Xinpu
Cheong Sung
British Virgin
China (PRC)
84
Joyou AG
Vtion Wireless Technology AG
Joyou AG
Hong Kong Zhongyu Sanitary Technology Ltd.
Quanzhou Joyou Sanitation Technology Industry Co., Ltd.
Germany
China (PRC)
Hong Kong
Joyou Group Building Materials Co., Ltd.
Nan’an Joyou Galvanization Industry Co., Ltd.
Vtion Wireless Technology AG
Vtion Technology (China) Co., Ltd.
Vtion Information Technology (Fujian)
Co., Ltd.
Germany
China (PRC)
British Virgin
Vtion Software (Fujian) Co., Ltd.
85
Business Media China AG
Greater China Precision Components Ltd.
Business Media China AG
BMC Beijing
Shanghai Branch
Germany
China (PRC)
Greater China Precision Components Ltd.
Huizhou Green Plastic Electronics Co., Ltd
Singapore
China (PRC)
86
Asian Bamboo
ZhongDe Waste Technology AG
Asian Bamboo AG
Hong Kong XRX Bamboo Investment Co., Ltd.
Xinrixian Food Development Co., Limited
Germany
China (PRC)
Hong Kong
Shanwu Sanyuan Food Development Co., Ltd.
ZhongDe Waste Technology AG
Chung Hua Environmental Protection Assets (Holdings) Group Limited
Fujian FengQuan Environmental Protection Equipment Limited (China)
Germany
China (PRC)
Hong Kong