Companies favour HK arena over Shanghai

PUBLISHED : Monday, 26 September, 2011, 12:00am
UPDATED : Monday, 26 September, 2011, 12:00am


Companies would prefer to issue yuan-denominated shares in Hong Kong instead of on a new stock exchange planned to be launched in Shanghai, according to the Chamber of Hong Kong Listed Companies.

The Shanghai Stock Exchange's proposed international board will allow foreign companies to list on the mainland, but no time frame for its launch has been set.

'I think only those companies, such as HSBC, which want to raise awareness in the mainland market would prefer to list on the international board,' said Lo Ka-shui, head of the chamber.

'If Hong Kong companies list in the mainland, they will need to follow both the mainland and Hong Kong listing rules.'

Lo said the Shanghai bourse could be less attractive for investors due to certain mainland regulations, particularly capital controls that limit market access to overseas firms.

Chinese companies are also prohibited from bringing back to the mainland yuan accumulated offshore, discouraging them from issuing yuan shares.

Hong Kong Exchanges and Clearing (HKEx) in July announced rules allowing companies to apply for initial public offerings in both yuan and Hong Kong dollars. It also issued guidelines earlier this month allowing listed companies to issue yuan-denominated shares.

To facilitate yuan shares trading, the HKEx will also introduce banking facilities aimed at providing yuan to stock brokers, allowing investors who do not hold the currency to trade in yuan shares.

The yuan is not yet fully convertible, but since 2009, the mainland has allowed companies to use the currency to settle cross-border trade.

A landmark relaxation in July last year allowed the currency to be transferred between the bank accounts of individuals and financial companies, encouraging the launch of yuan- denominated investment products such as insurance, funds and bonds.

However, the first yuan initial public offering in Hong Kong, by Hui Xian Real Estate Investment Trust, disappointed investors when it dropped 9.35 per cent on its debut in April.

Lo said the market slump made another yuan IPO less likely, with investors 'not interested in buying anything'.

But he said many companies listed in Hong Kong were expected to issue yuan stocks to finance mainland projects in the long-term.

Vice-Premier Li Keqiang, during his three-day visit to Hong Kong last month, said foreign firms would be able to invest yuan holdings directly into mainland projects. The details of this measure have yet to be released.

'China will allow the currency to be freely convertible in five to 10 years,' Lo said. 'When that happens, it will make sense for companies in Hong Kong to issue yuan shares.'

1tr yuan

The estimated amount of yuan expected to flood the Hong Kong market by the end of this year, according to Reuters