London's junior market full of Western promise

SMALL Chinese companies unable to raise finance at home are turning to UK investors through London's Alternative Investment Market.

Corporate adviser Seymour Pierce has steered four of the 47 Chinese initial public offerings to date and has set up its own AIM China Index to track the Chinese contingent's performance on the junior market.

Jim McCafferty, head of research at Seymour Pierce, says: "If you're a Chinese company and want to get access to growth capital, there's a very limited number of places you can go. In the UK, you can go to the bank and the bank will structure finance for you. In China you can go to the bank for an overdraft for working capital but you can't get finance if you want to build a new factory or make an acquisition."

There are also queues of many years to float on China's two domestic stock exchanges in Shanghai and Shenzen, which McCafferty says have moved "sideways" for a large part of the last decade and were principally a vehicle for debt-laden state-owned enterprises to dip into the wealth of private sector savings.

Beijing does not stop private firms tapping foreign markets for capital and many have secured listings in markets including Japan, Korea, Canada and the Nasdaq, as well as AIM.

Griffin Mining, the 200 million owner of a zinc-gold mine 200km north west of Beijing in Heibei province, joined AIM in 1997 and has been followed by companies ranging in size from the 3m industrial machinery group China Wonder to solar panels business Renesola, the biggest constituent with a value of 567m, representing 20 per cent of the Seymour Pierce Aim China Index.

"I think AIM is becoming more of an international market," McCafferty says. "There's a good understanding of the key investment issues and there's liquidity if you want to raise further capital over a number of months or years.

"We raised 6m of capital for China Shoto (a leading Chinese producer of industrial batteries and power supply systems) at the end of 1995, which more than achieved our expectations. But then they decided they wanted to build another factory, so we went back and raised another 10m."

So far this year, McCafferty says the AIM China Index has returned six per cent versus the FTSE's four per cent. A joint venture with Singaporean corporate financier helps Seymour Pierce handle the logistics of advising Chinese clients.

He adds: "Conference calls are always made first thing in the morning, when it's 8am here and 4pm in Asia."