The Future of Chinese Listed Companies on U.S. Exchanges

In February, the law school at Columbia University hosted a webinar discussing the timely topic, The Future of Chinese Listed Companies on U.S. Exchanges. Columbia University is the alma mater of TPG president, Brandi Piacente.

During the session, panel experts exchanged views on the current state of affairs, offered practical ideas for overcoming roadblocks and discussed potential future scenarios. We were fortunate to participate in this event. Our webinar summary notes are below.

Webinar Summary Notes – The Future of Chinese Listed Companies on U.S. Exchanges

Alibaba, Baidu and JD.Com are just a handful of the more than 200 Chinese companies listed in the U.S. About half the cross-border listings in the U.S. are from China every year and in 2020 alone, close to 30 Chinese companies listed in the U.S., raising $11.7 billion.

The reasons for the draw are many, chief among them being that a primary or a secondary listing on the Nasdaq or the New York Stock Exchange helps a Chinese company raise capital quickly and perhaps more easily, while also giving U.S. investors access to high-value stocks outside of their home country.

However, recent geopolitical tensions between the U.S. and China have been threatening to erode some of this momentum. Two U.S. government initiatives are set to increase scrutiny on Chinese and other foreign companies listing on U.S. exchanges. Firstly, an executive order prohibits U.S. investment in companies that Washington views as tied to or supporting the Chinese military. And more recently, the Holding Foreign Companies Accountable Act threatens to delist foreign companies in three years or prohibit them from U.S. listings if they do not comply with audit-oversight inspections.

This presents a problem, one that is asking to be solved quickly. Here are our key takeaways from Columbia Law School’s timely and topical webinar on The Future of Chinese Listed Companies on U.S. Exchanges.

Panelists on the webinar, including academics, legal experts and cooperate executives, agreed that going to IPO in the U.S. remains a top priority for Chinese companies. The benefits continue to outweigh the challenges and obstacles. The U.S. being the largest, most liquid and most active market in the world, makes it very appealing to Chinese and other foreign companies despite the hurdles.

An IPO in the U.S. is still an extremely attractive option for Chinese companies, saving them time and the hassle of a cumbersome process at home, one of the participants said.

The fact that Chinese companies raised nearly $12 billion from IPOs in the U.S. in 2020, during a time of deteriorating Sino-American trade relations, is a testament to the deep draw U.S. markets have for Chinese companies and vice versa.

A legal expert noted that there remains a continued strong pipeline of Chinese companies planning to list in the U.S. despite the issues.

To be sure, U.S. investors are equally keen that Chinese companies continue to list on U.S. exchanges, granting them access to investment opportunities.

Hong Kong option

It was widely acknowledged that other markets are viable options for Chinese companies, and the U.S. is not the only game in town.

While it was a record year for Chinese companies listing in the U.S., mainland companies listing in Hong Kong also increased.

And if Chinese companies leave U.S. exchanges, U.S. investors will find a way to follow them and invest in them nonetheless. This is likely to happen even though it presents a risk for U.S. retail investors as they don’t have the same legal protections when they invest abroad compared to when they invest in the U.S.

Open to dialogue

Most participants on the call agreed that the world’s two largest economies, the U.S. and China, were open to dialogue and that nothing was set in stone yet.

There was a wide consensus on the webinar that both sides are very willing to engage and discuss the matters – an undeniably encouraging sign that a solution or some type of compromise can be worked out. Talks remain ongoing on many levels.

Winds of change – the Biden Administration

President Joe Biden’s administration in January delayed the implementation of a ban on Americans investing in companies with possible ties to the Chinese military.

While this indicates a softer stance to some, panelists on the webinar were of the opinion that it was too soon to tell and it remains unclear how the Biden Administration would tackle the situation.

There was also a discussion that at a time when the world has changed so much so rapidly, the U.S. needs to acknowledge the Chinese government’s legitimate concerns and work towards being more accommodative in order to maintain competitiveness and best protect U.S. investors.

IPO hope floats

In general, all the panelists said they were hopeful that the two countries would be able to reach a solution within the three-year window. They noted that this would require the resolve of both countries to work together, but they agreed that as long as both sides are talking, finding a solution is possible.

The Chinese economy is now huge and the U.S. economy is huge. Neither are going away, so must find a way to work together in this reality.

(Panelists on the call included Harvey L. Pitt, Chief Executive Officer, Kalorama Partners LLC, and former Chairman of the United States Securities and Exchange Commission; Edward Greene, Partner, Cleary Gottlieb, and Adjunct Senior Research Scholar in the Faculty of Law, Lecturer in Law; Georges Ugeux, former Executive and Head of International Listings, NYSE, and Lecturer in Law; Lorna Xin Chen, Asia Regional Managing Partner, Head of Greater China at Shearman & Sterling; and the conversation is moderated by Professor Benjamin L. Liebman, Director, Hong Yen Chang Center for Chinese Legal Studies).

TPG: Market Leader in 2020

We are proud to have led the market in 2020 in China-based US-listed IPOs. 2020 was a turbulent year for the markets and we are grateful for the trust we’ve earned over 15+ years partnering with leading management teams in China to tell their stories to the Street.

https://crm.marcumbp.com/china-accounting-insights/chinese-companies-continued-to-flock-to-u.s.-2020

TPG INSIGHTS – Green Bonds: A Developing Trend in Worldwide Bond Markets

The Green, Social and Sustainability Bond market has grown tremendously in recent years. Here we discuss the latest trends in Green Bonds, what types of investors typically buy them and what IR professionals should consider before their Company’s issuances of this kind of debt. Green, Social and Sustainability Bonds by definition are defined by how their proceeds are used.

Benefits to issuers raising Green Bonds include:

· Investor diversification
· Communication of the issuer’s sustainability strategy
· Tapping into an oversubscribed demand for this category of debt
· Enhancing internal collaboration amongst businesses

What is a Green Bond/Social Bond?

Green Bond’s use of proceeds is earmarked for environmental- or climate-related projects such as:
· Renewable energy
· Energy efficiency
· Clean transportation
· Pollution control
· Green constructions
· Sustainable water management

Social Bond’s use of proceeds is earmarked for projects with positive social outcomes funding essential services such as:

· Health
· Education
· Financial services
· Affordable housing
· Basic infrastructure
· Transportation
· Clean potable water

Trends
As Green Bond issuances continue to accelerate and demand from institutional investors rises, Corporate issuances will continue to increase while Green Bond guidance around the world begins to emerge regionally in local countries. For example, the People’s Bank of China (PBOC) issued Green Bond guidance for its domestic market in 2015. Issuances immediately began to climb and comprised nearly 27% (equivalent to $27 billion) of total Green Bond issuances in 2016. These Green Bonds denominated in Renminbi (CNY), was remarkable compared to the nearly zero dollars’ worth of CNY issuances in 2015. In 2016, this was driven by financial institutions accounting for 91% of CNY issuances.

The Green Bonds Principles (GBP) The International Capital Market Association is the current Secretariat for the Green Bond Principles (GBP). The GBP’s executive committees holds regular meetings with issuers, underwriters, investors and GBP members to ensure the principles remain dynamic and relevant to the rapidly developing market.

The Green Bond Principles have been translated into many languages, which can be found here: https://www.icmagroup.org/green-social-and-sustainability-bonds/green-bond-principles-gbp/

United Nations Climate Change Conference

The 2019 United Nations Climate Change Conference (UNFCCC COP 25) will be held in Santiago Chile, in December 2019. The conference serves as a formal meeting of member nations to assess progress in dealing with climate change.

Ways in which your Bank or Depositary Bank can help:

Part of your relationship with banks can be boiled down to how relationship managers choose to deliver the firm. For example, if you bank with J.P. Morgan or have relationships there, they can make an introduction to one of the early pioneers and contributors to the Green Bond Principles and someone who happens to be JPM’s banker in charge of Green Bond raises. If your DR Bank happens to be Bank of NY Mellon, their Global IR Advisory(GIRA) team has dedicated Environmental, Social and Governance (ESG) professionals to help you traverse the world of ESG. Additionally, Deutsche Bank and Citi along with JPM were early adopters in the support of guidelines for Green Bonds and can aid in your navigation of these waters. Outside of this interesting rise in millennial-controlled asset allocation, the traditional class of investors including pension funds, insurance companies, high-net worth individuals and family offices are committing allocations to Green Bond issuances. Asset managers have also created Green Bond funds and manage separate green account mandates for Environmental, Social and Governance Portfolios. Bond managers are also committing to investing in Green Bonds.

To learn more about Green Bonds:

  • We suggest: Going to the link in this article and reviewing a copy of the Green Bond Principles, available in multiple languages, including Chinese.
  • Looking through Issuers’ portfolios and reviewing your peers to see if they’re financing green projects. Could you be a pioneer in this area among your peers? Taking note that Green Bonds can also be used to refinance projects.
  • Determining how Green Bonds may fit in an issuer’s ESG strategies. Figuring out how you can report back the impact of the Green Bond project’s expected results.

With this in mind, we believe that you will often find that Green Bonds price in line with traditional debt offerings of an issuer and will often be oversubscribed due to investor demand.

Sources:
1. https://w w w .climatebonds.net/
2. https://w w w .db.com/cr/en/concrete-Deutsche-Bank-supports-guidelines-for-green-bonds.htm

 

Best Practices: Digital and Visual Investor Relations Support (Part 3)

By Christopher Chu, Vice President, The Piacente Group

We conclude this three-part series with some checklists that may help you in your journey towards integrating visual elements and multi-disciplinary digital practices with your IR program.

Pragmatically, “best practices IR,” is choosing between following what one’s peers have repeated in the past, and deemed permissible by both internal and external counsel; or alternatively, accept the challenge and being the first to brave something new even if that activity is outside the scope of their wheelhouse.

One example was a client that I worked for. They happened to have been one of the largest beverage companies in the world. Their IR team created a breakout line of business investor events where investors met with divisional heads of the company on a quarterly rotational calendar. In turn, the IR team was awarded best European Analyst Days: Beverages by IR Magazine. Sometimes thinking outside of the traditional best practices pays dividends, though it can be somewhat of a more difficult road to travel.

In this spirit, best practice IR can mean taking the path less traveled or trailblazing a road of your own entirely. In this era, often the creative playbooks that you as an IR practitioner generate will play a far greater role in enhancing investor communications than any recycled best practice that you have used in the past.

In this digital-first world, practitioners can no longer avoid concepts such as content marketing or playing the part of an influencer from a capital markets perspective. For example, retail investor marketing has evolved, new tools such as products from Discovery Data offer a new modicum of digital outreach and contact management that are a bit more up-market than traditional retail IR programs of the past.

In turn, skilled IR practitioners have the chance to be expert narrators projecting the corporate journey out to wider audiences as the competition for capital becomes even more difficult -affected by market changes which include passive investingalgorithmic/high-frequency tradingMiFID IImarketing automation and direct corporate access.

To recap:

In Relation to IR, Digital Media Techniques Can:

  • Provide a new medium for delivering financial results and communications
  • Be used to call out or provide context to important information statistics
  • Be used to communicate approved messages in “story mode”
  • Re-direct audiences back to information localized on the corporate website and taking back control of content
  • Engage with new audience demographics including registered investment advisors with regards to retail IR programming rebooted

When Going Digital It Helps to Collaborate, for IR Teams Who Want to Broaden Their Digital IR Footprint:

  • Taking stock of internal resources is a good way to start
  • Explore how corporate communications, marketing, PR and graphics departments can assist is the easiest path to adding digitally and visually enhanced program elements to an IR program

If you are exploring contact marketing focus on content creation and select distribution such as LinkedIn, Twitter, Wikipedia, Seeking Alpha.

Digital/Visual IR Checklist:

·       Start small; decide on one or two projects that your team can assist in producing

·       Review communications protocols by packaging them into multiple formats such as video, infographics, financial social media sites, enhanced fonts and color blocks that highlight information to a reader

·       Explore RIA, marketing automation and database tools such as those offered by Discovery Data

·       Like in the J.P. Morgan earnings release example, an earnings release can be prepared for newswire distribution, made compliant for SEC-filing in addition to being visually enhanced via pdf-document saved on a corporate website. This offers a broad “upcycling” of content in various formats that may just reach out and appeal to a broader spectrum of investor types.

·       Use link-backs to your own websites to control information flow

Link to part 2 of this series.

Best Practices: Digital and Visual Investor Relations Support (Part 2)

“In a digitally visual world, how you present your communications matters.”

By Christopher Chu, Vice President, The Piacente Group

Utilizing science can help you shape investor communications. From eye tracking studies that investigate attention, to corporate communications/PR best practices that restrict thought leadership articles to 2,000 words or less, to the rise of infographics and the science behind it, as we come to learn that 65% of the population are visual learners.

The takeaway is that with or without the help of resources from an organization’s graphics department, corporate communication or PR teams, message dissemination and retention is markedly improved through the use of visual communications strategies.

Example:

Let’s explore the treatment to J.P. Morgan’s earnings from a visually enhanced point of view. As you will be able to clearly see, this is a management and IR team who have clearly decided that they were looking to be more than just proficient in their investor communications.

Enhancing Earnings Releases Visually:

Link to J.P. Morgan illustrative earnings release 4Q2014

and

After:

Link to J.P. Morgan illustrative earnings release 4Q2018

Post-mortem:

The creators of this format:

  • Continue to maintain S.E.C. guidance on the use of “plain English” in the company’s story-telling
  • The release was clearly visually enhanced, color blocks to accent KPIs and utilizing different versions of the ER to maintain compliance with filing requirements and e-distributions
  • Control of information continues to be tight as notification of an earnings release takes the reader back to J.P. Morgan’s IR pages
  • Repetitive content has been cut back in the new formatted earnings release
  • Levels of control have been properly maintained

Sources for corporate information have already been transformed.

Traditional methods of information dissemination now have shorter staying power than ever and even less reach than ever before. As information pathways increase in complexity; portfolio managers, analysts and retail investors leverage multiple sources of information as part of their due diligence process. For corporates, the ability to direct investors back to its own sources of information is becoming increasingly important, while providing opportunities to engage with a broader spectrum of investors in a familiar manner.

In our final segment of Best Practices: Digital and Visual Investor Relations Support, I’ll provide a checklist of ideas for how you can begin one’s journey into visual investor relations but before that happens here’s a little hint:

When going digital it helps to collaborate.

For IR teams who want to broaden their digital IR footprint, taking stock of internal resources is a good way to start. Exploring how corporate communications, marketing, PR and graphics departments can assist is the easiest path to adding digitally and visually enhanced program elements to an IR program.

Link to part 1 of this series.

 

Best Practices: Digital and Visual Investor Relations Support (Part 1)

“How can IR teams broaden the appeal of their programs by utilizing corporate communications, PR and marketing strategies?”

By Christopher Chu, Vice President, The Piacente Group

The goal of investor relations has always been to protect brand reputation, mitigate risk and showcase executive management teams while maintaining compliance with financial reporting requirements of regulatory bodies.

From a marketing view, it’s our jobs to position management as shining knights in pursuit of maximizing shareholder value while keeping risk at bay. And at minimum, it’s our job to keep the corporate spokespeople of the companies that we work for on message at all times.

We do this via ghost writing for others, mitigating crises or managing the execution of planned events and processes throughout the calendar year. In 2016, I competed for and won a role at J.P. Morgan, joining an investment bank in my 40’s was not something that I had ever planned. It was an unfulfilled itch that needed to be scratched as I had always regretted turning down a role at Goldman to pursue agency IR in my 20’s.

The head of the division where I was employed as well as the head trader of that division entrusted me to lead its Global IR Advisory services team towards new directions, one area of focus was IR thought leadership. So the article that I present to you while timely is also a few years old as it had been shelved when I was recruited to join the marketing team of yet another ADR bank.

Now that I have happily returned to agency life, I thought it would be fun to redraft this shelved piece in hopes that the article sparks interest with IR teams looking to integrate modern digital marketing best practices into their own IR toolkits. The thought being that the world in front of us slows down for no one, not even investor relations which historically has been an extremely conservative field.

As the investor relations community continues to maintain its focus on regulatory communications and financial reporting – the real world around it continues to be constantly bombarded and reshaped by digital marketing. Communications and marketing tactics have traditionally fallen outside the scope of an IR practitioner’s portfolio, yet are commonplace with their colleagues in corporate communications, channel marketing and public relations (PR) teams. The colleagues of IR practitioners have been thrust into this new paradigm, driven by two primary forces content creation and distribution. These two information drivers have promulgated a whole tool chest of analytical tools used to measure, influence and deliver communications across a broad marketing funnel of stakeholders. A marketing funnel by the way describes the “theoretical marketing journey,” by which a consumer is converted from a random uninformed audience participant at the widest part of the funnel to a converted customer at the bottom of the funnel where it is most narrow. If you take this same analogy and swap out a few words for investor and shareholder, it is easily applied to IR marketing. In fact, let’s try it:

A marketing funnel, by the way, describes the “theoretical marketing journey,” by which an investor is converted from a random uninformed audience participant at the widest part of the funnel to a converted shareholder at the bottom of the funnel where it is most narrow.

And voila, we’ve taken our first step in the journey of modernizing the IR toolkit, by looking at marketing theory outside of IR as a discipline. Whether an IR practitioner is targeting a retail audience to invest in their stock or a top shareholder, marketing funnels play an important role in digital IR marketing. As we dive further in this realm of mashing disciplines and integrating IR, corporate communications, PR and marketing we will explore ways in which a Company can put forward a stronger more unified message.

In Relation to IR, Digital Media Techniques Can:

  • Provide a new medium for delivering financial results and communications
  • Be used to call out or provide context to important information statistics
  • Be used to communicate approved messages in “story mode”
  • Re-direct audiences back to information localized on the corporate website and in essence taking back control of content

Part 2 of this article will focus on internal marketing collaboration … see you next time!

 

Five Investor Relations Trends You Will See in 2019

By StreetReader

https://www.streetreader.com/2019/01/17/five-investor-relations-trends-you-will-see-in-2019/

The capital markets are constantly evolving and 2019 is poised to be a year of major change. In this article we look at how these changes are impacting the marketplace participants with a focus on the Investor Relations programs of public companies. Changes in regulations, investor focus, structural shifts, and investor decision making processes are all contributing to a market environment that is as dynamic as ever. Now more than ever, companies require an Investor Relations program that is built for the modern era.

At StreetReader, we are always speaking with our IR customers and tracking trends in the capital markets and investment management industries. We see five trends that are sure to keep Investor Relations professionals quite busy in 2019.

Activism Will Play A Bigger Role

Activists are launching more campaigns, deploying more capital, and winning more board seats. We are also seeing traditional asset managers taking more active roles and speaking out publicly leading to more activist-like engagement with companies.

The WSJ recently highlighted how Neuberger Berman went public over 130 times in the past two years with their demands on how management can improve the company. AllianceBernstein recently wrote a white paper explaining how active managers should take a more activist approach to their investments, “In our view, active equity managers are best positioned to stimulate change, to promote corporate improvements—and to increase the power of activist investing in the future.”

In 2018, Activists targeted a record 284 companies and have secured a record number of board seats.

As activism grows, the need to manage an increasingly vocal activist investor base introduces new workflows and new challenges.

Future IPO Activity Looks Robust

There are many large IPOs lining up for a 2019 debut. Although the government shutdown is impacting the pipeline in January, when the SEC gets back to work, they will be quite busy.

Uber, Pinterest, Lyft, Slack, Airbnb, Palantir, and Postmates are amongst the largest of the companies that are all putting together the pieces to be a public company, including new Investor Relations programs. Their competitors will need to track these IPOs closely since they will impact the comparable valuations and will drive news flow throughout the year as investors start focusing on these new investment opportunities.

MiFID II Is Shifting The Workload

Mifid II is changing how sell-side analysts operate as intermediaries in the capital markets.  For decades, analysts have sent their research to a wide range of institutional investors in exchange for future commission payments.  That practice has been stopped in Europe and is slowing in other geographies since MiFID II is mandating direct payments for research. Portfolio managers and analysts are having fewer conversations with fewer analysts and many have reduced access to research sources. Brokers are also sponsoring fewer conferences in most sectors, especially those run by non-bulge bracket banks.

This means that IR teams now have to spend more time getting their message to investors via direct channels.

Alternative Data Is Gaining Mass Adoption

There are over 400 alternative data providers with diverse data sets that institutional investors are using in their investment processes. In a recent survey by Greenwich Research Associates, 50% of asset managers stated that they plan to increase their usage of alternative data in 2019. These datasets include data on credit card sales, web scraping, web traffic, email scraping, social sentiment, satellite data, and many others.

The rise of alt data creates a need for IR teams to understand what investors are looking at. The major market data vendors only include a small subset of these data sets so it will be up to IR teams to come up with creative solutions on how to obtain this insight from the investment community.

The Focus On ESG Factors Is Increasing

ESG continues to gain prominence as an important investment theme.  Many dedicated ESG funds, and all of the major passive asset managers are looking for more transparency in numerous ESG and corporate governance metrics. These metrics include factors such as compensation, shareholder rights, environmental risks, carbon, climate and natural resource impact, human rights, product safety, and many more.  This work is often handled by IR teams who now collate and report on these metrics in addition to the traditional financial metrics.

While ESG has been a popular form of investing in Europe for many years, the importance of ESG factors for U.S. investment managers has accelerated dramatically in recent years. According to the US SIF Foundation, institutional investors using ESG factors in their investment process increased 44% from $8.1 trillion in 2016 to $11.6 trillion in 2018.

Companies with debt in their capital structure will also need to focus on ESG factors as part of their credit ratings. S&P Global Ratings has already incorporated ESG into its credit ratings, and Fitch’s research indicates that 22% of its current corporate ratings are influenced by ESG-related factors.

With all these changes, the one thing that is more certain than ever is that public companies must invest in their Investor Relations programs to keep up. It is the job of the IR team to be the resident experts on the capital markets within their company and educate all the senior leaders to ensure the company is managed to maximize the value from all stakeholder perspectives.