London capital markets: Bridging the cultural gap
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Asia-Pacifi c and Chinese companies on AIM: opportunities and challenges
Survey background
We conducted two online surveys in February and March 2016, one aimed at Asia-Pacific and Chinese companies listed on London capital markets, specifically AIM, the other aimed at advisers to such companies.
Respondents to our company survey include executive directors, non-executive directors, chief financial officers and other senior managers. Respondents to our adviser survey include representatives of nomads, brokers, lawyers, financial PR agencies and accountants.
1London capital markets: Bridging the cultural gap
Foreword
This report is not intended to dwell on the recent
issues involving a number of Chinese companies
listed on AIM, but to share the views of Asia Pacific
and Chinese companies and their advisers and
focuses on how they might be able to address the
challenges they face when coming to London
capital markets and avoid the issues which have
overshadowed certain Chinese issuers in recent years.
Growth in China may have slowed, but there remain
good opportunities to invest in companies with a
strong business, credible management team and a
clear growth plan.
Businesses based in the balance of the Asia-Pacific
region may also find themselves affected by the
shadow falling over certain Chinese companies. They
too need to understand what investors and analysts
require of them in order to establish confidence and
attract and retain long-term backing.
Some of the challenges that Asia-Pacific and Chinese
companies face are common to entities from all
geographies. Under performance and poor corporate
governance, for example, will always weaken
investor confidence. Regardless of their home
market, all companies experience a learning curve
when converting from a private to public company
and in coming to terms with the impact of new
requirements, including the greater transparency
expected of them.
This report, highlighting the answers of our
respondents, shows that professional advisers have
important roles to play in guiding aspiring quoted
companies through the listing process and beyond.
Understanding the differences in business culture
and realising that communication isn’t always
straightforward is a good start to facilitate
the process.
The vital importance of corporate governance also
comes through strongly. Companies from outside
the western business tradition need to understand
that AIM requirements, as relatively light touch as
they may be, must be met. In fact, companies
suffering negative sentiment, even where their story
is a strong one, should consider raising their
governance bar and applying standards higher than
the minimum required.
Marty Lau – Partner
Head of Capital Markets
Moore Stephens
2 London capital markets: Bridging the cultural gap
Survey findings
Is AIM achieving its target of simplicity?Compared to the Main Market, AIM was designed as
a market with lighter touch listing requirements and
ongoing regulation, as appropriate to smaller,
growing companies. Our survey finds that both
advisers to AIM companies and the companies
themselves generally find this to be the case.
None of the advisers or companies surveyed consider
the AIM listing rules to be complex or extremely
complex from the perspective of issuers. In fact,
the vast majority of advisers (83%) classify them as
not complex and little complex.
We also asked advisers how difficult they consider it
to be to fulfil post-admission responsibilities as a
nomad for AIM companies operating in China or the
Asia-Pacific region. Again the majority of participating
advisers (70%) see this as not complex.
Whereas some companies do see more complexity, as
might be expected, 25% still see the AIM rules as not
complex and over half (58%) think they are only a little
complex, while 17% describe them as relatively
complex. Asked about ongoing obligations post-
admission, 33% of company respondents do not think
the rules are complex, while 50% see them as a little
complex and 17% relatively complex.
Relatively complex
Complex
Extremely complex
Little complex
Not complex
AIM rules
Asia-Pacific and Chinese companies' views on the complexity of AIM requirements
Little complex
Ongoing obligations post-admission
25% Not complex33%
58% 50%
17%
0%
0%
Complex
Extremely complex
0%
0%
Relatively complex17%Relatively complex
Complex
Extremely complex
Little complex
Not complex
AIM rules
Asia-Pacific and Chinese companies' views on the complexity of AIM requirements
Little complex
Ongoing obligations post-admission
25% Not complex33%
58% 50%
17%
0%
0%
Complex
Extremely complex
0%
0%
Relatively complex17%
25% of companies see the listing rules as ‘not complex’
3London capital markets: Bridging the cultural gap
The fact that companies and advisers associate AIM
with a relative lack of complexity is welcome.
However, this success may also be linked to some of
AIM’s recent problems.
Some companies may misunderstand this relative
simplicity, mistakenly thinking that a lighter touch
regime means that compliance with the rules is
voluntary. In fact, a respondent commented that,
some maybe being misled by inexperienced local
advisers and so have failed to understand the
importance placed by UK regulators and investors on
at least minimum compliance standards being met. It
is important that all advisers emphasise to any
company seeking an AIM listing that, although the
requirements may be lighter than on the main
market, they are non-negotiable and failure to meet
them will damage share price performance.
Listing process issuesAdvisers and companies have different perspectives in
terms of their experiences of the listing process. The
vast majority of company respondents (83%) say their
business did not encounter any significant issues
during the listing process for admission on AIM. This
re-affirms the fact that companies listing on AIM find
the process to be a relatively straightforward one.
Nevertheless, 67% of advisers say they have
encountered significant issues during the listing
process for Chinese or Asia-Pacific companies coming
to AIM. This is perhaps not too surprising. Advisers
work with multiple companies, so are more likely to
experience a significant issue at some point than an
individual company experiencing the listing process.
67% of advisers say they have encountered significant issues during the listing process
It’s cultural. The Chinese companies who are private suddenly find themselves subject to UK regulatory requirements and simply do not understand why these things are important or should be open to scrutiny.
Financial PR agency
4 London capital markets: Bridging the cultural gap
Reasons for listing on AIMAccess to capital is the dominant reason that
companies surveyed decided to list in the UK, all
participants ranking it as extremely important or
important. They also place high importance on the
positive impact an AIM listing would have on their
company’s reputation or profile.
Advisers also place high importance on these two
reasons, although slightly less than on the desire for
improved corporate governance. It may be that advisers
interpreted this question in a particular way, responding
from the viewpoint that an AIM listing would have the
effect of improving corporate governance.
One interesting difference between company and
adviser responses concerns the facilitation of merger
and acquisition (M&A) activity. Half of companies say
that this was an important or extremely important
reason for listing on AIM, compared to only a quarter
of advisers. Similarly, over half (58%) of companies
think that access to customers was an important or
extremely important reason for listing on AIM,
compared to only 25% of advisers.
The fact that so many advisers have encountered
issues should not be waved aside. In explanatory
comments, many advisers refer to communication
failings, particularly when things go wrong. Some
Asia-Pacific and Chinese companies may not
appreciate that UK advisers would rather be told
of bad news when it happens, rather than discover
it later on. It seems that culture differences (as
considered later) can cause problems in creating
strong relationships between companies and
their advisers.
This helps to explain why, when we asked advisers
about the extent to which Asia-Pacific and Chinese
clients had satisfied their professional requirements in
the UK, only 5% describe themselves as completely
satisfied. Almost a quarter (23%) are satisfied and
19% a little satisfied.
In stark contrast, the vast majority (92%) of
companies describe themselves as extremely satisfied
(25%) or satisfied (67%) when asked about how well
their professional advisers helped them meet their UK
listing objectives.
92% of companies are satisfied with their advisers
5London capital markets: Bridging the cultural gap
58%
44%
8%
60%
Access to capital
Companies
Important
Extremely Important
Important
Extremely Important
Advisers
Reputation / company profile
Facilitate M&A
Access to customers
Access to European / globalconsumer markets
Improving corporate governance
Access to suppliers
Facilitate debt financing
Access to government tenders / contracts
42%
30%
75%
19%
42%
9%
16%
8%
16%
33%
9%
8%
12%26%
42% 8%
16%
8% 8%
9% 5%
17%
14% 5%
17%
5%
65%
50%
8%
Reasons for Asia-Pacific and Chinese companies to list on AIM
58%
44%
8%
60%
Access to capital
Companies
Important
Extremely Important
Important
Extremely Important
Advisers
Reputation / company profile
Facilitate M&A
Access to customers
Access to European / globalconsumer markets
Improving corporate governance
Access to suppliers
Facilitate debt financing
Access to government tenders / contracts
42%
30%
75%
19%
42%
9%
16%
8%
16%
33%
9%
8%
12%26%
42% 8%
16%
8% 8%
9% 5%
17%
14% 5%
17%
5%
65%
50%
8%
Reasons for Asia-Pacific and Chinese companies to list on AIM
This suggests that advisers may be overlooking
opportunities that exist post-listing to advise Asia-
Pacific and Chinese companies on the fulfilment of
M&A strategies. Moore Stephens’ client experience
supports the finding that there is a strong appetite
among Asia-Pacific and Chinese companies for UK and
continental European acquisitions, and this is an area
where professional, local expertise is highly valued.
50% of companies think that facilitating M&A activity is an important or extremely important reason for listing on AIM
6 London capital markets: Bridging the cultural gap
Communication gapsBoth companies and advisers place high importance
on communication with investors, advisers and
regulators, although there is a difference in degree.
All companies rank communication in the top two in
terms of importance, 42% saying it is significantly
important with the remaining 50% saying it is
important. Similarly, almost all (98%) of the advisers
surveyed give this a top two ranking, with 93%
giving it the highest level of importance.
Similarly, the importance of effective public relations
and investor communications is understood. All
companies see this as related to their company’s
market performance, 33% seeing it as highly related.
Among advisers, 80% think effective public relations
and investor communications would influence a
company’s share performance, with 33% seeing the
two as highly correlated.
However, differences of opinion arise in terms of how
easy or difficult companies and advisers perceive
communication to be accomplished successfully.
Asked about the ease or difficulty of communicating
with UK investors, advisers and regulators, just 8% of
companies see this as difficult. A third (33%) think it
is very easy or easy, with 58% saying it is neither easy
nor difficult.
How wide is the cultural gap?Among companies surveyed, 50% see no or little
difference between the business culture in their
home country and the UK. Only 17% see these
as very or broadly different.
Advisers are much more likely to identify a culture
gap between western business practice and that
of Chinese or Asia-Pacific businesses. Under a
quarter (21%) say they have experienced no or
little difference, while 59% have found practices
to be completely or broadly different.
It seems that the culture gap can cause problems
in terms of creating strong relationships between
companies and their advisers.
Overcoming these cultural differences can be a
challenge. Companies can respond by taking
steps to improve communication with advisers, for
example, by appointing at least one UK-domiciled
director and making full use of non-executive
directors who understand UK and local business
practices and corporate governance expectations.
7London capital markets: Bridging the cultural gap
63% of advisers find it difficult to communicate with Chinese or Asia-Pacific clients compared to typical UK companies
Turning to advisers, when asked how easy or difficult
they find it to communicate with Chinese or Asia-
Pacific clients compared to typical UK companies, only
9% describe this as easy or very easy. Over a third
(35%) think it is difficult and 28% very difficult. This
result echoes the fact that advisers appear to feel they
face more issues than companies when completing
AIM listings, with communication problems already
identified as a key concern.
It seems that companies do not fully recognise that
communication weaknesses exist. This may be partly
because they are not sufficiently close to the market
in terms of having a UK base. The majority of
companies surveyed (83%) have not established a
UK office. One response to address weak investor
confidence might be to consider setting up a
representative office, backed up by the appointment
of UK-domiciled directors. This could make a real
difference to communication channels, by providing a
clear point of contact in an accessible location for
investors and advisors.
The importance of a high-quality board of directorsThe quality of a company’s board is an important
issue for UK corporate governance. Companies and
advisers were both asked to rank the importance of a
number of factors when assessing the make-up of
the board of directors. Not surprisingly, advisers place
high importance on multiple factors, particularly prior
industry experience, prior listed company board
experience, English language fluency and relevant
professional qualifications. The majority of companies
also see all these factors as significant or important,
although they uniformly place less emphasis on them.
This suggests that companies may not fully appreciate
the importance placed on board quality by investors,
advisers and regulators. Those that don’t see prior
listed company experience, English language fluency
or professional qualifications as important could find
it particularly challenging to sustain investor
confidence and may find communication especially
challenging. Seeking and acting upon an independent
review of board competency could be one approach
to help improve the confidence of both investors and
nomads in Asia-Pacific and Chinese companies. Amongst Chinese companies a lack of belief in their cash balances has been evident. An independent report to shareholders, whether an audit or some other form of comfort on the cash position would help to silence critics.
Broker and financial adviser
8 London capital markets: Bridging the cultural gap
Factors that affect the quality of the board of directors
31%
2%
3%
Prior industry experience
Companies
Important
Unimportant
Important
Unimportant
Advisers
Prior experience as listed company board member
English language fluency
Relevant professional qualifications
Investor relations capability
UK educated
69%
98%
16%
97%
85%
93%
23%
100%
77%
7%
23%
7%93%
62% 38%
77% 23%
77%
15%
84%
Factors that affect the quality of the board of directors
31%
2%
3%
Prior industry experience
Companies
Important
Unimportant
Important
Unimportant
Advisers
Prior experience as listed company board member
English language fluency
Relevant professional qualifications
Investor relations capability
UK educated
69%
98%
16%
97%
85%
93%
23%
100%
77%
7%
23%
7%93%
62% 38%
77% 23%
77%
15%
84%
Strengthening investor confidenceGiven the decline in the performance of the majority
of Asia-Pacific and Chinese shares issued on AIM in
recent months, we specifically asked both companies
and advisers what steps they thought could
strengthen investor confidence. Encouragingly,
both survey groups place most importance on
communicating more regularly with investors. By
communicating more regularly, companies could
expect to benefit from improved investor appetite
and nomad support.
Advisers also place high importance on auditing
interim financial results. Although this is not currently
a requirement for AIM companies, it could provide
substantial reassurance to investors and help to
minimise the risk of nasty shocks emerging at year
end. Similarly, a majority of advisers see independent
reviews (for example, specific reviews or reviews of
corporate governance and internal control procedures)
as potentially important steps to strengthen investor
confidence. However, the value of both interim audits
and independent reviews is not recognised strongly by
most companies surveyed.
9London capital markets: Bridging the cultural gap
Comments from advisers made during the survey also
emphasise the importance of generally improved
corporate governance standards among Asia-Pacific
and Chinese companies. Some stress the need for
qualified finance directors, at least one NED being
from the UK and known in the UK, board meetings
involving all directors, a UK-domiciled director, access
to key directors during roadshows, and faster
reporting of any difficult issues.
Nomads and non-executive directors clearly have a
role to play in explaining to companies why enhanced
corporate governance can reassure investors and help
to improve share price performance. An important
tenet of UK corporate governance is that high
standards not only protect shareholder interests, but
also help to improve company performance. Interim
audits and independent reviews could help
companies to address weaknesses earlier, identify
risks and take steps that enable them to operate with
greater resilience and deliver better results.
Advisers also place more importance than companies
on increasing dividend yields, although only 51% of
advisers think this would help to strengthen investor
confidence. This reflects the fact that many UK large
and institutional investors, such as pension funds,
seek, by preference, long-term capital growth.
42%
60%
26%
Communicate with investors more regularly
Have interim results audited
Have independent reviews
Increase dividend yields
42%
26%
17%
47%
25%
21%
37%
49%
14%
33%
8%
25%
Companies
Important
Extremely Important
Important
Extremely Important
Advisers
Strengthening investor confidence
42%
60%
26%
Communicate with investors more regularly
Have interim results audited
Have independent reviews
Increase dividend yields
42%
26%
17%
47%
25%
21%
37%
49%
14%
33%
8%
25%
Companies
Important
Extremely Important
Important
Extremely Important
Advisers
Strengthening investor confidence
10 London capital markets: Bridging the cultural gap
Overall perspectivesEvery company surveyed believes that being quoted
in the UK has benefited their business: 17% say it has
been very helpful and 83% helpful. Every company
participant said they would be willing to recommend
UK capital markets to others. This indicates that, at
least among the businesses in this survey, AIM’s
reputation remains strong and that good quality new
companies can be expected to seek a UK listing in
the future.
The key question is, will nomads and other advisers support them? We asked advisers whether they planned to spend
more or less time in the next 12 months exploring
London listing opportunities for Chinese or Asia-
Pacific businesses. Just over a quarter (26%) say
they plan to spend more time – a surprisingly high
result, given the recent negative sentiment towards
existing AIM listed companies.
This is encouraging for aspiring companies. There are
nomads and other professional advisers who are
urged to continue looking for opportunities among
Asia-Pacific and Chinese companies. If they look, they
will find entities with strong past performance and
future potential, who could benefit from seeking a
London listing and attracting support from the
London capital market.
On the other hand, if advisers walk away from these
opportunities, not only they but also the London
Stock Exchange, the UK and the global economy
could be the poorer for it.
26% of advisers plan to spend more time exploring London listing opportunities in the next 12 months
I have not dealt with any Chinese companies. Indian/Asia Pacific companies are on the whole run by very sophisticated people and they know how to be careful. They usually meet all our credit-worth requirements.
International law firm
11London capital markets: Bridging the cultural gap
Conclusion
There is no doubt about the challenges faced by
Asia-Pacific and Chinese companies listed on the
London Stock Exchange and those currently seeking a
London listing. Investor confidence has been
weakened and companies need to understand what
is required of them in order to gain and retain the
support of nomads and to attract and maintain
investor backing.
It is essential companies make sure they have thought
through their reasons for seeking a London listing
well before they approach their advisers and begin
the process. A strategy that includes the desire for
M&A activity or access to local customers is likely to
be stronger than one based solely on the desire to
access capital. Companies are also encouraged to
consider how they can demonstrate that they are
listing for long-term growth rather than for short-
term gain.
There is good news for Asia-Pacific and Chinese
companies with high standards of corporate
governance. A commitment to thorough and timely
communication would improve appetite for investment.
Key messages from this survey:• Companies need to make sure they
understand the requirements of a London
listing, and the reasons for seeking a London
listing well before they begin the process.
• They should consider going beyond the
minimum standards established by AIM.
• Although auditing interim financial results is
not currently a requirement for AIM
companies, it would provide substantial
reassurance to investors.
• Companies should consider whether they are
doing enough to communicate clearly and
promptly with investors and analysts.
• Seeking and acting upon an independent
review of board competency is one approach
to helping improve the confidence of both
investors and nomads.
• Companies would benefit from setting up
representative offices, backed up by the
appointment of UK-domiciled directors.
• High standards in corporate governance would
not only protect shareholder interests, but
also help to improve company performance
and compliance.
12 London capital markets: Bridging the cultural gap
Advisers are still looking for new opportunities to
work with companies seeking a London listing and
willing to provide advice and support. If all parties
work together to restore investor confidence, the
London capital market community can continue to
provide Asia-Pacific and Chinese companies
with access to capital and so support global
economic growth.
We believe investor confidence in Asia-Pacific and
Chinese companies can be restored by:
• continuing to raise the standard of the companies
currently listed on AIM, for example, through the
delisting of underperformers or the non-compliant;
• ensuring that companies coming to market
understand what is expected of them in terms of
corporate governance and investor relations activity
and furthermore commit to providing the required
cooperation and information;
• improving communication between companies and
their investors, analysts and advisers, by appointing
UK-domiciled directors;
• taking additional steps to reassure investors of the
quality of companies through the completion of
independent reviews.
At Moore Stephens we believe that strong investment
opportunities are still offered by the right Asia-Pacific
and Chinese companies. Investors should not be
deterred from seeking them out, as there are
examples of successful Asia-Pacific and Chinese
companies on AIM.
The reputation of AIM and other UK capital markets
will continue to attract aspiring businesses, and these
businesses need strong support from their advisers to
help them meet market expectations.
The Chinese market is still strong with high growth. Investor sentiment needs to be improved.
CFO of electronics company
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in 14 countries across the Asia-Pacific region, of which 47 offices are located in China.
Our China and Asia-Pacific Services Desk team is led by Marty Lau, a Partner at
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We are therefore well placed to understand the investment needs of Asia-Pacific businesses
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Contact informationIf you would like further information on any item
within this brochure, or information on our services
please contact:
Phil Cowan
Marty Lau
Moore Stephens LLP, 150 Aldersgate Street, London EC1A 4AB T +44 (0)20 7334 9191www.moorestephens.co.uk
We believe the information contained herein to be correct at the time of going to press, but we cannot accept any responsibility for any loss occasioned to any person as a result of action or refraining from action as a result of any item herein. Printed and published by © Moore Stephens LLP, a member firm of Moore Stephens International Limited, a worldwide network of independent firms. Moore Stephens LLP is registered to carry on audit work in the UK and Ireland by the Institute of Chartered Accountants in England and Wales. Authorised and regulated by the Financial Conduct Authority for investment business. DPS31805 May 2016