China in talks with Taiwan on IPOs

Discussions between stock exchange regulators in the PRC and Taiwan could open a new exit option for private equity, but the politics underpinning the talks mean decisions will take time.

Shuqing Guo, chairman of China Securities and Regulatory Commission, traveled to Taipei yesterday to begin talks with his Taiwanese counterpart, chairman of the Financial Supervisory Commission Yuh-chang Chen, on allowing PRC companies to list on the Taiwan stock exchange, according to local media reports.

For a domestic private equity industry struggling with exit outlets, the news is welcome. 

The discussions are part of the PRC government's efforts to address a large problem for Chinese companies. The waiting list for IPO approval on the mainland has reached almost 900 companies, and US stock exchanges are virtually closed to Chinese companies.

But Derek Sulger, partner at Lunar Capital Management, does not expect there will be much of an immediate impact. “It really just highlights how desperate private equity in China is for exit outlets.” 

Hong Kong has always been a fallback for Chinese companies, and recent private equity exits on the Hong Kong stock exchange have raised hopes that markets are beginning to recover.

Sulger believes Singapore, and eventually Taiwan, will emerge as alternative exchanges for Chinese companies.

The question yet to be answered, however, is exactly what kind of companies the Taiwan stock exchange will welcome from China, Sulger said. His guess is Taiwan will appeal to high-tech and internet companies from China that would traditionally go public on NASDAQ, because those are areas where Taiwan investors already have expertise.

Shao-long Kuo, vice secretary-general of the Taiwan Private Equity and Venture Capital Association, also believes that the current discussions will take time. He sees two main problems. First, Taiwan regulations prohibit companies with a controlling shareholder to list – in other words, private equity will not be able to exit control positions on the Taiwan stock exchange easily, he said.

A second problem will be Taiwanese suspicions of Chinese companies, Kuo said. Many Taiwanese investors remain wary of scandals and regulatory requirements will have to be negotiated to address those concerns. 

“But this is a big opportunity [to boost] Taiwanese private equity [activity], so there is much internal pressure towards this,” Kuo added. With Taiwanese private equity so underdeveloped, Kuo believes that a door open for Chinese companies could jumpstart it.