Liaoning arm on course for fourth-quarter red-chip float

Liaoning provincial government has secured approval from the China Securities and Regulatory Commission (CSRC) for a red chip float of its assets in Hong Kong, according to sources.

The approval of the listing, which is expected to raise between US$200 million and $300 million, has signalled a new trend of red chip listings for local governments' investment arms.

Sources said the listing vehicle of the provincial government, which probably would be named Liaoning Development or Liaoning Infrastructure, would come to the Hong Kong market in the last quarter of this year.

The approval, which came last month, is part of Beijing's efforts to help the northeastern province - which is home to the largest number of loss-making large and medium-sized state-owned enterprises in the mainland - to tap funds to combat problems of an ailing state sector and rising unemployment.

Sources said the vehicle would be a pure infrastructure play as had been envisaged when the listing was conceived in 1996.

This was to comply with recent CSRC guidelines that red chip listings should have an outstanding focus of one business, or 70 per cent of assets and net profit within a specific industrial sector.

It is unlikely there will be a repeat of previous red chip listings such as Tianjin Development Holdings, Beijing Enterprises Holdings and Shanghai Industrial Holdings, which have their businesses spread across several different industries.

The source added that a pure infrastructure play would present an attractive and safer investment in a bearish market.

As such, Liaoning's listing vehicle will mainly be composed of roads.

They include the 370-kilometre Shenyang-Dalian Expressway, the airport Expressway and possibly about a 100 km Liaoning section of the 600 km Shenyang-Beijing Expressway.

The 100 km section should be operational upon listing while the entire expressway is expected to come into operation by 2000.

The listed vehicle would include a power plant in Fushun while the much-rumoured water plant in Anshan and port facilities in Yingkou probably would be injected into the company after listing, the source said.

It would also have to wait until after the listing before it considered buying other industrial projects previously put on the shopping list.

Clearing the way for the float was a consensus reached by interested parties which would save the listed company from having to borrow money to buy the assets.

Difficulties in raising hundreds of millions of dollars had held up the flotation but the parties involved had now agreed to take a stake in the listed vehicle in exchange for their assets, another source said.