China Firms Seek Frankfurt Listings to Revive Europe Connection

Chinese companies are exploring Germany as a fundraising venue, in a move that could reinvigorate the European market for their global depositary receipts.

Two companies are getting ready to test the waters. Renewable-energy firm Sungrow Power Supply Co. is planning to seek as much 4.88 billion yuan ($680 million) in Frankfurt through the sale of GDRs, it said last month. Solar-panel maker JinkoSolar Holding Co. announced an offering of as much as 4.5 billion yuan of the receipts in a Shanghai-listed unit.

The China Securities Regulatory Commission said in a statement to Bloomberg this week that it supports a “stable and orderly” deepening of the connection between the Shanghai and Shenzhen exchanges with global markets. The regulator highlighted the memorandum of understanding that was signed Nov. 6 between the Chinese and German exchanges over depositary receipts.

The plans from Sungrow and JinkoSolar underscore how the renewable-energy sector has appeal in both Germany and China, said Lerong Lu, a reader in law at King’s College London who has researched GDRs.

“It’s a win-win situation for both countries’ industrial cooperation and financial markets,” Lu said. For Chinese companies, the fundraising route offers a simpler path to get cash and boost their international profile than tapping US capital markets, given the uncertainty triggered by Donald Trump winning a second term as president, he added.

The Shanghai-London Stock Connect debuted in 2019, expanding in 2022 to include Switzerland, Germany and Shenzhen.

Despite several Chinese GDR listings in recent years, the stock link has achieved limited traction among European issuers. British bank HSBC Holdings Plc studied a listing in mainland China around the time London’s Stock Connect program was established, but the plans never materialized.

Read more: The Forgotten UK-China Stock Connect Program Now Needs a Reboot

Success in Europe is no certainty. Listings by Chinese firms in Switzerland surged before the CSRC held up approvals due to concerns about arbitrage, Bloomberg News reported in March 2023. Chinese investors were scooping up the GDRs and converting them into shares in their home market to profit from persistent price gaps, with little to no interest from European investors.

Still, “it was never the Chinese regulator’s intention to shut down overseas GDR offerings,” said Hang Wang, a partner in Baker McKenzie’s capital-markets practice group in Beijing.

A spokesperson for the Deutsche Boerse said it was “technically ready” to welcome the GDRs at the Frankfurt Stock Exchange, and also pointed to the recently signed memorandum. The Shanghai Stock Exchange, Shenzhen Stock Exchange, JinkoSolar and Sungrow didn’t respond to requests for comment.

“Chinese regulators and exchanges are keen to expand the stock connect program, promoting stronger linkages between Germany and China’s capital markets,” said Jean Thio, a partner in Clifford Chance’s capital-markets group.

The CSRC in May 2023 laid out new rules to restart GDR approvals, introducing requirements for companies, including registering with the regulator within three working days after submitting their GDR listing applications abroad and disclosing identities of buyers. The regulator has since pledged to support GDR issuance in Europe.

“While it is unlikely that we will see Chinese GDR markets regaining the popularity they had in 2022, I would not be surprised to see a few other companies following suit,” said Baker McKenzie’s Wang.

Sungrow and JinkoSolar aren’t the first Chinese companies to seek Frankfurt GDR listings: In late 2022, the board of Shanghai-listed equipment manufacturer Sany Heavy Industry Co. approved the company’s GDR issuance, only for Sany to scrap the plan this April, citing what it described as changes in internal and external environments.

Meanwhile, a successful GDR sale in Frankfurt could encourage further such deals, said Clifford Chance’s Thio.

“China has long been Germany’s largest trading partner,” she said. “Companies will naturally consider listing destinations based on their business presence.”