1. The Opportunity Overseas Financing and Stock Listing EQUITY - PDF document

China International Finance Forum 2018 alex@erskinomics.com December 2018 15 th China International Finance Forum (CIFF), Shanghai 15 December 2018 15 th China International Finance Forum (CIFF), Shanghai 15 December 2018 Session 6: Overseas Stock Listing Summit 1. The Opportunity Overseas Financing and Stock Listing • EQUITY CAPITAL VITAL FOR INVESTMENT EXPANSION, ALEX ERSKINE ALEX@ERSKINOMICS.COM CONTAINING LEVERAGE AND INSURANCE 15 DECEMBER 2018 SHANGHAI, PRC • COMPANY STRATEGY ON CROSS-BORDER GROWTH, Note: This is NOT general or specific advice – get your own professional advice REPUTATIONAL GAINS AND DIVERSIFICATION ALEX@ERSKINOMICS,COM 2 1 2 15 th China International Finance Forum (CIFF), Shanghai 15 December 2018 15 th China International Finance Forum (CIFF), Shanghai 15 December 2018 China’s Equity Issuance Activity by Country 2 main forms of listing on a foreign exchange companies have been more Domestic Equity Foreign Equity Issuance Company lists IPO Company cross-lists Issuance active in Country No. of Av. annual Av. annual Av. annual Av. annual existing shares domestic and No listing in home market firms value value/firm value value/firm foreign issuance # USD m USD m USD m USD m e.g. N-shares: Chinese Same shares as in home companies incorporated market issued on foreign China 3,445 27,085 11 19,496 19 Many have taken up the opportunity for big outside the mainland market 24 other 14,237 62,765 8 13,829 13 issues in foreign emerging markets May be “exempt” from some markets Data for 1990 – 2014 regulatory requirements (25 years) for 17,682 Source: Calomiris, Larrain and Schmukler. 2018. Capital Inflows, Equity companies from 25 Issuance Activity, and Corporate Investment. World Bank Policy emerging markets Research WP8405 – author re-working of Table 1, which is Thomson Reuters SDC Platinum data. ALEX@ERSKINOMICS,COM 3 4 3 4 15 th China International Finance Forum (CIFF), Shanghai 15 December 2018 15 th China International Finance Forum (CIFF), Shanghai 15 December 2018 Listing in a foreign market Pros and Cons Source of equity capital Regulatory and other requirements 2. Path of Investment List on a “main board” Listing costs may offset expected benefits (which may not materialise) Can raise firm’s visibility and value by and Financing increasing market liquidity, market Price disparities for dual-listed shares? segmentation, disclosure and May contributes little to a company’s investor protection – in home market total trading volumes as well as foreign market • STILL TOO FEW TAKING UP THE EQUITY OPPORTUNITY Conflicting findings on net benefits of Can overcome investors’ “home bias” cross-listing: e.g. on cost of capital or in the foreign market • THE OUTLOOK FOR ISSUING ABROAD HAS DARKENED firm value ALEX@ERSKINOMICS,COM ALEX@ERSKINOMICS,COM 5 6 5 6 1

China International Finance Forum 2018 alex@erskinomics.com December 2018 15 th China International Finance Forum (CIFF), Shanghai 15 December 2018 15 th China International Finance Forum (CIFF), Shanghai 15 December 2018 So far, cross-border equity issues are only … and the opportunity has dimmed in a minor part of cross-border financing … Australia Most overseas financing Bankers without Borders Surge in Chinese share issues on Australian stock exchange involves banks, sovereigns and in 2014 – 2016 has faded, some have delisted and several portfolio investors The title of the World Bank Global Financial Development Report applicants apparently rejected – Not corporates 2017/2018 – Not FDI and The exchange and the regulator were concerned by poor – Not cross-border equity disclosure and reporting standards: all new applications will raising be considered on their merits It will be a long time before a Global Financial Development Report is titled Returns on previous Chinese listings have generally been Stock Issuers without Borders BIS researchers “Gross Capital Flows by Banks, poor: would-be investors likely to be sceptical in future Corporates and Sovereigns” (S. Avdjiev, B. Hardy, Ş. Kalemli-Özcan and L. Servén) BIS Working Papers No 760 Dec. 2018 ALEX@ERSKINOMICS,COM ALEX@ERSKINOMICS,COM 7 8 7 8 15 th China International Finance Forum (CIFF), Shanghai 15 December 2018 15 th China International Finance Forum (CIFF), Shanghai 15 December 2018 And nowthe outlook is darker: New challenges for those listing abroad 3. Stock Market Listing 1. Rising interest rates and volatility 2. Re-regulation, tax and in Australia more transparency 3. UK Brexit from EU 4. US – China trade war AUSTRALIA OPEN FOR FOREIGN ISSUERS 5. ….? BUT WANTS BETTER QUALITY ISSUERS ALEX@ERSKINOMICS,COM ALEX@ERSKINOMICS,COM 9 10 9 10 15 th China International Finance Forum (CIFF), Shanghai 15 December 2018 15 th China International Finance Forum (CIFF), Shanghai 15 December 2018 Australia’s superannuation system Australia is attractive for equity issuers* creates an equity-oriented market 1. 20-year growth in Steady growth, low inflation and Also NSX 1 A$ = pension assets +12.1% p.a. flexible exchange rate & SSX US$0.72 (mandated contributions, ASX A$1.8-2.0tr market capitalisation competitive funds and 2010 domestic & 142 foreign stocks defined contributions) A$31bn initial capital raising and A$59bn secondary (12m.t.Oct) 2. US, Australian and UK A$5.1bn daily av. turnover (12m.t.Oct); 45% foreign investors funds have highest Superannuation A$2.8tr Market integrity & high allocations to equity pool of investable funds prudential standards Thinking Ahead Institute * Of course, “past performance is not a reliable indicator of future performance” Global Pension Assets Study 2018 ALEX@ERSKINOMICS,COM ALEX@ERSKINOMICS,COM 11 12 11 12 2

China International Finance Forum 2018 alex@erskinomics.com December 2018 15 th China International Finance Forum (CIFF), Shanghai 15 December 2018 15 th China International Finance Forum (CIFF), Shanghai 15 December 2018 Once listed, many market integrity Get up-to-date professional specific advice Get up-to-date obligations …. ASX’s listing rules for foreign issuers professional specific advice Foreign Incorporated Companies listing under the profits or assets tests ASX ASIC ASX Listing Rules and Guidance Notes REPORT 521 Further review of emerging Profits test Assets test market issuers April 2017 Consolidated profit of A$0.5mn+ Net tangible assets of A$4m+, or Market capitalisation of A$15m+ All interlocking Audited accounts for 2 or 2½ years+ Concerns: corporate governance, internal Working capital of A$1.5mn+ Focus on continuous disclosure controls & risk management systems, complex ownership & contractual arrangements, requirements reliance on key individuals outside Australia, Minimum “free float”: 20%+ of shares, i.e. not restricted securities or subject to voluntary escrow ability of company or auditors to verify Query in 2017 about capital information, gatekeepers, etc. arrangements or held by non-affiliated security holders flow/currency conversion restrictions Spread test: >300 non-affiliated security holders who each hold securities worth AU$2,000 (or more) Strategy: focus on confident and informed investors and financial consumers & fair and – Or – Foreign Exempt Listing efficient financial markets If listed on an acceptable foreign exchange and market capitalisation of A$2bn+ or NTA of A$2bn+ ALEX@ERSKINOMICS,COM ALEX@ERSKINOMICS,COM 13 14 13 14 15 th China International Finance Forum (CIFF), Shanghai 15 December 2018 Better issuers – start planning now Thank you and best wishes ALEX@ERSKINOMICS,COM 15 15 3