Chinese IPOs

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Managing the Cultural Gap with Chinese Companies who wish to do an IPO in London

By Frank Lewis

I have been working with Chinese Companies for over five years and I have been associated with three Chinese companies that have listed in London. Generally speaking, from a cultural point of view, Chinese people are not very open when dealing with people from the West. This applies even more in business – thus creating greater risk management issues.

It is therefore a big culture shock for Chinese businessmen and companies that wish to come to the UK to do business or to do an IPO, when they realise what they have to do to meet the transparency and legal requirements. These include the ongoing obligations of a listed company, corporate governance requirements, the appointment of independent Non-Executive Directors and the setting up of various committees such as audit and remuneration.

The Chinese directors will need to respect the way business is done in the West, including the IPO process, and at the same time people here need to understand and respect the Chinese culture.

It is of  great importance that Chinese companies have directors on their boards that speak English. If they also have people that have worked in the West, it would be an advantage. The directors also need to understand that they and the company would need to be examined before an IPO can take place.

Due diligence may include:

  • Financial Position
  • Business Plan  and working capital requirements
  • Legal Position
  • Organization Structure
  • Directors in terms of suitability to be a Director of a listed company

The above would be examined and investigated by the brokers/nomads, lawyers and reporting accountants. Chinese companies need to understand that a competent board of directors need to be set-up with executive and independent Non-Executive Directors. The concept of Non-Executive Directors is not normally appreciated at first. NEDs can add to the progress and credibility of the company in a number of ways including; communicating with institutional investors.

By having UK based Non-Executive Directors on their boards with experience of working with Chinese companies and understanding the culture, this can greatly assist the Chinese directors with the IPO process and also assist post-listing with regard to dealing with advisors, communication, rules and good Corporate Governance. Therefore directors who have experience of working with Chinese companies can appreciate their concerns and issues and can help address these in a respectful way.

Experienced Non-Executive Directors can also assist with the learning curve of how listed companies should conduct themselves and deal with issues like price sensitive information. My personal experience is that generally one has to earn the respect and trust of your Chinese colleagues on the board, and when there is mutual respect they will take the advice on running a listed company in the UK, and comply with the rules of corporate governance including risk management.

In conclusion, it is very important for Chinese or other companies wishing to do an IPO to appreciate that the IPO is only the beginning and not the end of the process, in terms of success and capital growth for shareholders.

Frank Lewis is a Non-Executive Chairman and Director of UK and international listed and non-listed companies. franklewis.co.uk

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