Meilan plans dual-currency IPO in Hong Kong

But investors may be wary of mainland chemicals maker's planned flotation given weak market and complications in dealing with both HK dollar and yuan

PUBLISHED : Tuesday, 14 August, 2012, 12:00am
UPDATED : Tuesday, 14 August, 2012, 9:07am

Meilan International Holdings, a mainland chemical producer, may become the first company to raise both yuan and Hong Kong dollars with a planned dual-currency initial public offering in the city in the fourth quarter.

But brokers have already cautioned that investors may not favour these dual offerings given the current weak market conditions.

Previously, companies including jewellery retailer Chow Tai Fook Jewellery had initially planned dual-currency IPOs but eventually chose to list in Hong Kong dollars only due to the complications of having a dual-currency offering, as well as poor market sentiment.

Meilan, based in Jiangsu province, has submitted an application to the stock exchange for an initial public offering to raise more than US$100 million and may offer two tranches of shares - one denominated in Hong Kong dollar and the other in yuan, according to Bloomberg, which did not name its sources. Hong Kong Exchanges and Clearing issued guidelines for dual listings last year, under which companies can issue shares in yuan only, or in both Hong Kong dollar and yuan. So far no companies have opted for these offerings. The yuan is not yet freely convertible but Beijing since 2009 has gradually relaxed rules to encourage firms and individuals to use the currency for trade settlement and investment.

"The stock exchange system is ready and the brokers are ready but we have to wait for the right market conditions for us to see the first dual currency IPOs," said Jojo Choy Sze-chung, chairman of the Institute of Securities Dealers. "If the IPO is carried out now when market sentiment is weak, it would be hard to attract investors, no matter if it is a Hong Kong dollar or a yuan IPO."

Joseph Tong, executive director of Sun Hung Kai Financial, said some firms preferred Hong Kong dollar IPOs as it was simpler and easier for all. "Not every Hong Kong investor has yuan on hand and Beijing caps the amount individuals can exchange at 20,000 yuan a day," he said. "Many investors have to borrow margin from brokerages and it is difficult for brokers themselves as they do not have much yuan on hand either."

The only yuan IPO in Hong Kong has been Hui Xian Real Estate Investment Trust but that is not considered a company. Since then, some yuan-denominated Exchange Traded Funds and yuan bonds have listed but are not actively traded.

"A dual-currency offering will be a real test of the yuan-denominated investments in Hong Kong and I do not think this is the right timing," said Kenny Lee Yiu-sun, chief executive of First China Securities.

"If a company issued an IPO in both Hong Kong dollar and yuan, the only reason for an investors to buy into the yuan tranches would be an expectation of the rising value of the yuan against the US dollar. But now the yuan is expected to remain flat or have a slightly drop against the greenback this year."