MonitorDual-currency IPO breaks cardinal rule of capital markets
Two-track yuan and Hong Kong dollar listing plan is one bad idea, despite surface appeal of being first off the block and tapping more pools of liquidity
According to yesterday's Business Post, mainland chemical manufacturer Meilan International Holdings is hoping to become the first company to launch a dual-currency yuan and Hong Kong dollar share offering on the city's stock market.
It's a lousy idea.
You can see why someone thought a dual-currency listing might be a clever plan. No doubt the company's bosses reasoned that selling two tranches of shares, one denominated in Hong Kong dollars and the other in yuan, would allow them simultaneously to tap into two pools of liquidity.
They would not only get demand from the ordinary investors and institutions who buy into standard Hong Kong dollar offerings. They would also be able to sell their shares to any offshore holders of the yuan eager for returns higher than the meagre 0.2 per cent interest rate they currently earn on a 12-month yuan time deposit.
And then, of course, there would be all the attendant publicity they could expect to generate by becoming the first company to launch a two-currency stock issue. That should drum up yet more demand, and in today's difficult markets, any extra demand is a highly valuable commodity, allowing companies to charge a higher price for their shares.
Company executives might even have figured that the possibility of arbitraging between the two share classes would keep investor interest alive in the secondary market.