Small and medium-sized Chinese firms looking to list in London will need to prove their corporate governance is up to scratch if they are to win over investors scarred by scandal.
Chinese companies accounted for a third of all global initial public offering volumes in 2011, raising a total of $54.2 billion (34.4 billion pounds), according to Thomson Reuters data.
The vast proportion of this was raised on Chinese exchanges, but faced with a long wait to list at home, and attracted by specialist knowledge and a desire to boost their international reputation, Chinese firms' interest in London is growing.
However, investor perception of Chinese IPO candidates has been marred by a string of scandals.
Investors still want exposure to China but they were burnt a few years ago, said one investment banker.
There are plenty of companies that could get a London listing done, but they have to be really, really focusing on the governance as if you talk to any UK investor there will be a deep concerns about governance levels ... there is a lasting suspicion you don't necessarily get the full picture.
Lottery operator Betex delisted from London's Alternative Investment Market (AIM) in 2007, just 19 months after its 12.5 million pound ($19.7 million) IPO. Its shares had been suspended after Chinese authorities detained two senior members of staff for illegal gambling.
Others who ran into trouble include mobile phone handset maker ZTC Telecoms, whose chief executive and majority shareholder disappeared in 2008 after using shares in the company as collateral for a loan. Under new leadership and a new name, the company was readmitted to AIM six months later with the intention of completing a reverse takeover, but its listing was cancelled in late 2010 after it failed to do so.
A spate of scandals involving Chinese companies in North America last year is also fresh in the market's mind. Shares in Nasdaq-listed China MediaExpress Holdings, which provides bus advertising, plummeted after fraud accusations. Trading in the company has been halted since March last year.
GETTING GOVERNANCE RIGHT
Getting investors to take a punt will require convincing them that the next wave of companies are ready to cope with the rigours of a London listing, including regular communication with investors, and that they have the right structures in place in terms of board composition and financial reporting.
Chinese sportswear brand Naibu and mining services group Rare Earths Global (REG) are both currently marketing listings on AIM.
For REG, whose chief executive Simon Ong said they had chosen London over alternatives such as Hong Kong because of the city's abundance of mining specialists, the focus on corporate governance has been central.
The company, which is hoping to raise $50 million to expand its operations in China, has appointed three non-executive directors and plans to appoint a further UK-based director with AIM experience following its listing.
It will also set up audit and remuneration committees, and adopt some aspects of the UK's Takeover Code, despite not having to be subject to it as an overseas company.
Naibu has taken a similar approach, appointing three British non-executives, including Giles Elliot who previously worked with asset manager Schroders in Asia and David Thomas, who has experience of Chinese companies on AIM, its spokesman said.
Luke Webster, director at Charles Stanley Securities, which is working on REG's listing, said a run of more successful listings could help boost the number of Chinese IPOs in London.
There are 43 Chinese companies listed on AIM, more than a third of which joined in 2006 during a flurry of activity from Chinese firms. But the experience of high-profile failures like Betex and ZTC has dampened investor appetite.
What it needs is a couple of really good solid Chinese businesses to demonstrate good corporate governance, transparency and build a track record for delivering results with investors, said Webster, a former manager of the AIM regulation team at the London Stock Exchange (LSE)
Interest has been increasing, said Webster, particularly from retailers and manufacturers as Hong Kong and other Asian markets are already saturated with firms in these sectors.
The suitability of AIM, half of whose 1,122 companies each have a market capitalisation of less than 25 million pounds, for high growth companies and the opportunity to boost their international profile are also important drivers.
For Naibu, which plans to raise up to 50 million pounds to build new factories, being able to list quickly enough to exploit current growth opportunities in China was vital.
There is a long queue of companies waiting to IPO in Shanghai, with the Chinese government keeping tight control over the number of companies that can list. At the moment, capital markets lawyers say the backlog stands at around three years.
That puts the LSE, which has a Beijing office, in a good position to attract those frustrated with the domestic market.
The growing presence of Chinese investment banks in London - China International Capital Corporation (CICC) became the LSE's first Chinese member firm in May last year - is also likely to help boost the flow to London.
As these banks expand their London capabilities and staff numbers, it is likely that they will want to bring more Chinese companies to market in London, said Tracey Pierce, director of Equity Primary Markets at the LSE.
(Reporting by Kylie MacLellan; Editing by Jodie Ginsberg)