By LIU Yi
Since the beginning of this year, many listed Chinese companies have been issuing Global Depository Receipts (GDRs) in Switzerland.
GDRs are certificates issued by banks that hold shares in a company. These certificates are traded on the bank’s local exchange in the same way as the actual stocks would be. Through the buying and selling of these certificates, international investors can indirectly invest in the company’s stocks.
Chinese accounting standards
The GDR service was launched at the end of July last year when four A-share listed Chinese companies issued GDRs on the SIX Swiss Exchange, the first batch of Chinese companies to do so, and all through CitiBank.
So far, 18 Chinese companies have issued GDRs overseas, 13 of them on the SIX. Another 35 are in the process of issuing GDRs, with 32 of them planning to do so on SIX. The combined market value of the 13 exceeds US$75 billion (500 billion yuan). Of the 18 companies that have listed GDRs, CitiBank is the depositary bank for 17 of them.
Initially, companies were concentrated in high-end manufacturing, but now include chemical, pharmaceutical, and retail.
Issuing GDRs overseas raises funds directly from international markets and increases visibility. This can help them invest and develop overseas while providing overseas investors with the opportunity to invest. Switzerland is the main location for Chinese companies because it recognizes China’s accounting standards, so there is no need to conduct an additional audit.
However, issuing GDRs places requirements on Chinese companies. The minimum market value for issuing companies is 20 billion yuan (US$2.89 billion). While Swiss law and SIX disclosure obligations do not apply to GDRs, issuers must comply with local market disclosure rules in prospectuses and annual reports.
Environmental concerns
Apart from mandatory regulations, the emphasis is on the financial stability and sustainable development of listed companies. ESG is an important concern for European investors.
“GDR companies should formulate their development within the global system, be familiar with and understand ESG standards and policies of Europe and the United States. They should align their business philosophy and concepts with the concerns of European investors,” said XU Kezhen, head of CitiBank’s depositary receipt business in China.
All 18 companies have released ESG reports or corporate social responsibility reports.
