Analysis: Frankfurt bourse seen attracting Chinese IPOs

By Josie Cox

FRANKFURT (BestGrowthStock) – Frankfurt looks set to beat out Paris and London as a European hub for smaller Chinese listings thanks to a drive by exchange operator Deutsche Boerse (DB1Gn.DE: ), lower costs and a reputation for efficiency.

“It’s a snowball effect,” said Carsten Klante, managing director at investment bank Macquarie.

“The more Chinese companies list, the more will be encouraged to do so in future.”

Over the past two years a network of experts, prepared to advise Chinese companies, has formed in Frankfurt, he added.

“There’s no comparable network in Paris for example, so Chinese companies feel better supported in Frankfurt.”

Asia has dominated the global initial public offerings (IPO) market so far this year, with $151.5 billion of issuance, compared with just $31.2 billion in Europe.

But in China large companies with high market capitalizations tend to be given a priority when it comes to going public, said Alexander Hoeptner, head of Markets Services for Deutsche Boerse, making Europe an attractive alternative for smaller firms.

Since the beginning of 2007 there have been 25 Chinese IPOs in Frankfurt, nine of which were this year, compared with 17 in London, two of which came this year.

The bourse has been increasing its efforts to attract companies from emerging markets and also regularly organizes capital market events and listing seminars in China.

“The listing and admission costs for Chinese companies on the FSE (Frankfurt stock exchange) are among the lowest in the world,” said Joseph Marx, partner at the law firm Dewey & LeBoeuf, which has advised a number of Asian IPOs in Germany.

Listing fees for small-cap companies with market capitalizations of 500 million euros can be nearly 30 times higher in London than they are in Frankfurt, according to fees details published on the exchange operators’ websites.

Firms are also attracted by the fact that the approval process tends to be shorter in Frankfurt, Marx added. Aside from that, the German economy has a strong reputation for industry and technology, which Chinese companies favor, Marx said.

“The ongoing compliance requirements on the FSE are not as strict as other markets, such as with the Sarbanes Oxley Act in the United States,” he said.

RISING NATIONS

In March, Chinese bathroom appliances maker Joyou (JY8G.DE: ) made its debut in Frankfurt, boosting hopes that investor confidence may be returning after the global credit crunch.

Despite a rocky start, Joyou shares have gained around 7 percent since the beginning of October.

Euro Asia Premier Real Estate (Euro Asia) (JT9.DE: ) floated in May, followed by fashion house Kinghero (KH6G.DE: ) in August.

Kinghero shares have gained 56 percent since the beginning of September, and Euro Asia has gained more than 20 percent over the same period.

China’s United Power scrapped plans to float its business citing a liquidity shortage, as did China Specialty Glass (CSG), but both are counting on listing in 2011.

“Listing in Frankfurt provides the companies with access to investors not only in Germany, but across all of Europe,” said Drew Burns, investor relations director at China-based internet access card provider Vtion Wireless Technology (V33G.DE: ), which listed in Frankfurt in October 2009.

Experts see the trend of Asian listings in Frankfurt continuing.

“I could imagine that we will see more listings from Chinese and ex-Soviet Union companies in Frankfurt in the future,” said Klaus Schinkel, who oversees the German equity capital markets business for Royal Bank of Scotland.

Cost efficient capital market access and the availability of listed peers also attracts international companies to list in Frankfurt, he added.

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For a graphic on IPO performance: http://r.reuters.com/qyf83q

For a graphic on 2010 ECM volumes: http://r.reuters.com/wyx54q

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The chief executive of Frankfurt Stock Exchange operator Deutsche Boerse, Reto Francioni, agrees and expects Russian IPOs to inject life into the FSE in 2011.

Speaking about Russia and China at a forum in Frankfurt in November, he said: “Recent developments raise hopes for further listings from rising nations.”

Such recent developments include the June listing of Polish utility Tauron (TPE.WA: ), which raised $1.3 billion for government coffers through its IPO.

(Additional reporting by Christoph Steitz and Arno Schuetze; Editing by David Cowell)

Analysis: Frankfurt bourse seen attracting Chinese IPOs