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The China Europe International Exchange in Frankfurt is bullish that its first stock listing will finally spur investor interest in its offerings. (Photo by Jens Kastner)
Markets

Haier's Frankfurt listing bolsters Europe-China ties

But mainland companies still struggle to raise capital on the continent

FRANKFURT, Germany -- For three years, a securities exchange based in this subdued German financial center -- but focused on China and backed by Chinese investors -- has struggled to draw investor attention.

It is finally due for at least a brief moment in the spotlight. Next month, the China Europe International Exchange, or Ceinex, is set to get its first stock listing.

Qingdao Haier, a high-profile Chinese appliance maker with its primary listing in Shanghai, is to become the first "D-share" in a 1 billion euro ($1.17 billion) stock sale that is poised to be one of the largest in Germany this year.

Ceinex, which emerged out of a 2015 visit to China by German Chancellor Angela Merkel, is a joint venture between Deutsche Boerse Group, the Shanghai Stock Exchange and the China Financial Futures Exchange.

Preparations for Haier's listing come as Merkel met this week in Berlin with Chinese Premier Li Keqiang. Amid Beijing's growing trade conflict with the U.S. and difficulties with deal making there, China is seeking to boost ties with Germany and keep its doors open to acquisitions by Chinese companies.

German Chancellor Angela Merkel shakes hands with Chinese Prime Minister Li Keqiang at the chancellery in Berlin on July 9.    © Reuters

Until now, Ceinex's listings have consisted of only bonds and exchange-traded funds. Its average daily trading turnover was just 16.37 million yuan ($2.47 million) as of May 31. By comparison, Haier's average daily turnover in Shanghai is typically around 700 million yuan.

"We might not be the most frequently visited platform for now, but the listing of Haier will be a milestone," said a Ceinex spokesman. "China is gradually opening its capital markets to international investors and we are part of that opening."

Local media reports suggest that another 10 D-share secondary listings are in the pipeline. Ceinex officials confirm there are some but not how many.

Among the names touted is that of liquor maker Kweichow Moutai, which has been one of the most popular Shenzhen Stock Exchange stocks among offshore investors buying through that market's link with Hong Kong.

Market players though are skeptical about whether even prominent names like Haier and Kweichow Moutai will bring Ceinex to life given German investors' past problems with locally listed Chinese stocks. Notably, a yuan clearing center launched with considerable fanfare in Frankfurt in 2014 has been all but forgotten by German banks which still prefer to use Hong Kong.

For China Inc. though, there is more to be gained from listing in Germany than new investors amid growing controversy in the country about Chinese buyouts of leading industrial companies and infrastructure.

"[Listings] may eventually make [Chinese companies] appear more transparent and trustworthy as a buyer and a business partner in the European market," said Lars-Gerrit Luessmann, a partner focused on capital markets at law firm Taylor Wessing in Frankfurt. "This may then prove helpful to China's Made in China 2025 industrial masterplan, as it could help smooth the path for acquisitions of German high-tech companies."

The gain for Chinese companies' reputations would come in part from having to meet stringent European disclosure regulations. Of Deutsche Boerse's three transparency standards, Haier chose the strictest, according to the exchange.

In announcing its listing plans in April, the Chinese company said the D-share sale would be "conducive to reinforcing Qingdao Haier's presence in the global capital markets, by extending its brand's influence, promoting its corporate image and increasing its market share in the global consumer markets."

The D-shares will represent 7% of its enlarged share base. The offering won approval from the China Securities Regulatory Commission on June 12. Approval by the German Federal Financial Supervisory Authority is expected by mid-August, with trading to start shortly after.

Ceinex is now home to 70 bonds and 15 exchange-traded funds. Most recently, asset manager China Post Global listed an ETF in June that is tied to an index of Shanghai and Shenzhen stocks designed to minimize volatility.

"Investors here harbor an extreme mistrust for Asian companies, and the only chance I see for Ceinex to change this is with Chinese companies proving their trustworthiness over the course of time," said Stefan Mueller, chief executive of the German Institute for Asset and Equity Allocation and Valuation, an investor relations consultancy.

The mistrust stems in large part from a series of frauds and failures that marked the end of a boomlet in Chinese stocks listed on Frankfurt Stock Exchange's main board. In 2014, Chinese shoemaker Ultrasonic announced that its chief executive and his son had disappeared, along with $60 million in company funds. A few days later, the chief executive re-emerged, saying only that he had lost his mobile phone. The company's share price collapsed and it filed for insolvency.

Said Mueller: "China's portfolio of companies is similar to that of Germany, with a strong focus on autos, machinery and engineering. Why would I risk investing in a faraway auto parts supplier if I have one in the neighborhood whose every step is well-covered by the local press?" Even one new scandal, he warned, would quickly sink the D-share market.

Adrian Schmid, chief trader at trading house Handelsbuero Berlin, is equally wary of the idea of D-shares. "Although these shares will be euro-denominated, it is a fallacy to think that this will save me from foreign exchange risks, as the pricing in Frankfurt will always be based on the pricing in the Chinese home market."

Some observers are more optimistic. Thomas Stewens, co-head of the Frankfurt office of China-focused investment bank BankM, said, "D-shares can be attractive for international investment funds as well as for investors specializing in Chinese shares at a time when the Chinese economy continues to gain significance on the global scale."

He added, "It will be a real challenge, but I don't see [D-shares] as a mission impossible as long as the CEOs participate in roadshows here and Ceinex gets the message spread in the local financial press."

Ceinex unsurprisingly dismisses any comparisons with the previous wave of Chinese listings in Frankfurt. A spokesman noted these involved little-known companies without a home market listing, a strong contrast to companies like Haier and Kweichow Moutai.

"These Chinese blue-chip companies are hugely promising, and Ceinex gives the investor here an opportunity to participate with the convenience of German trading hours and easy access," he said.

"Haier's household appliances enjoy a global market share of over 10% and the company has a workforce of some 70,000, so there is zero risk that the CEO suddenly disappears with a suitcase full of money," he added.

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