ASX issues ‘please explain’ to 50 Chinese companies in capital flows

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The Australian Securities Exchange has issued a “please explain” letter to 50 Chinese companies listed on the local bourse regarding any problems they may have with capital flow in and out of China.

This was prompted when one group, Ding Sheng Xin Finance, went into suspension on August 29 after failing to submit its annual results on time.

But the group did not issue a reason why, which piqued the ASX interest.

The ASX is now asking the companies if they are having any trouble repatriating or converting Chinese renminbi (RMB) into foreign currencies and if they are aware of any changes to laws in China that may prohibit the repatriation or conversion of RMB to foreign cash.

The move comes after the Chinese government issued new guidelines to curb capital outflow spending.

The companies are across a range of industries from property, agriculture, mining and technology.

ASX spokesman Matthew Gibbs said it was a precautionary measure and most companies are responding that there is no issue.

“The ASX has taken the precautionary step to help ensure the market is kept informed,” Mr Gibbs said.

Beijing's Financial District Skyline, where the chinese government has issued new outbound investment guidelines.Beijing’s Financial District Skyline, where the chinese government has issued new outbound investment guidelines. Photo: Adobe Stock

“By asking companies to clarify their position, ASX and investors can assess if the issue is isolated or widespread. Based on the responses released to the market thus far, it appears the funding concerns are specific to one company that is already suspended. But we’ll continue to monitor.

“The ASX has taken similar country-of-origin or industry-wide action before, most recently in July this year with ASX-listed resource companies that may have been impacted by changes to mining laws in Tanzania.”

The ASX is also seeking assurances that companies can continue to meet their obligations as listed entities.

Mr Gibbs said the ASX is asking the same questions of Chinese companies listed on the ASX that have business operations in China.

One property group, Boyuan Holdings, and resources company, Chinese Magnesium, have responded saying they have had no difficulty repatriating money to China “in accordance to applicable Chinese requirements” and are not aware of any changes in China’s law “that generally prohibit repatriation of money outbound via conversion of RMB into foreign currencies”.

New guidelines

The changes by the Chinese government has had some impact on property investment with real estate agents saying there has been a decline in cash inflow.

Cushman & Wakefield’s researchers said with the Chinese government recently handing down guidance on overseas capital flows, there are concerns about the potential impact of a further drop in Chinese investment on the Australian commercial real estate market. The agents said Chinese investment into Australian real estate fell by 69 per cent in the first half of 2017 compared with the same period last year.

“Whilst new capital guidelines for mainland Chinese investors will mean more controlled investment, overall volumes are expected to remain firm and demand for Australian CRE remain robust supported by enquiry from a variety of global sources including Singapore and Hong Kong,” said James Quigley head of capital markets, Australia and New Zealand for Cushman & Wakefield .

The new guidelines on outbound investment effectively codify previous tightening measures and apply specific attention to overseas investment in the property and hotel sectors. The regulations are designed to reduce risk to Chinese businesses, and ultimately the banking system, by facilitating the “continuous, orderly and healthy development of overseas investment.

The Chinese government established three categories of overseas investment: those that are encouraged, limited or prohibited. Investments in real estate and hotels are categorised as ‘limited’ under the new classification.

“It is important to note that the Chinese government is not banning outright overseas real estate and hotel investments and some sectors. For example, logistics could receive increased interest following its inclusion in the ‘encouraged’ investment category. Additionally, R&D centres in business park type facilities may receive additional capital allocations,” Mr Quigley said.

By Carolyn Cummins
Sydney Morning Herald

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