Chinese companies finding credibility abroad

Derrick Woolf, a non-executive director of Jiasen, a Quanzhou furniture firm that listed on London's Alternative Investment Market in June last year, said he believes more Chinese companies will seek listings overseas, because international stock exchanges' stringent corporate governance regulations would boost their brand value.

And that will help the Chinese firms do business in their domestic markets, as well as help them strike partnership deals with overseas companies, Woolf said.

Jiasen, which raised 2 million pounds through its AIM IPO, has since entered discussions with Western companies over possible partnerships in China, Woof added.

The overseas listing allowed Jiasen to purchase a piece of land in China from the local government at discounted price, and use it to set up a new factory. This is because Jiasen's London listing has helped give credibility to the firm.

Another benefit of listing in a market like AIM is stability of valuation, because such a market is generally driven by institutional investors who hold their investment for the long term.

This is very different from China's domestic stock markets, which are dominated by retail investors who make decisions less rationally and tend to make more trades on a short-term basis, with their decisions greatly influenced by market sentiment as opposed to company fundamentals.

"From the perspective of a quality company, as they steadily grow and they meet investor expectations, their share price should rise steadily as more investors buy into their stocks over the long term," Woolf said.

"Overall, China has good, valuable and growing companies, and IPOs of these should be possible in London," said Ken Rumph, CEO of the consulting firm Clean Technics.

Rumph said successful Chinese companies listed in London generally would work to attract and maintain a wide group of institutional investors, as the work does not stop at the IPO.

He said one example of a Chinese firm that has achieved great benefit by listing in London is ReneSola Ltd, one of the world's leading solar photovoltaic manufacturers.

It initially started trading on the LSE's AIM in March 2006, raising $50 million followed by a further $120 million soon after.

"ReneSola then raised more money in New York and eventually delisted in London but remains listed in New York. Although its share price has followed the same roller coaster ride as other solar stocks, investors in the IPO had the opportunity to make significant profits during the boom years," Rumph said.