THE LISTING OF Bank of China Hong Kong (BoC HK) is likely to prove a milestone in the development of the SAR's stock market, investment professionals say. Technically the bank, with its 343 branches in the territory, is a Hong Kong company. But top management consists entirely of mainlanders. How they live up to their promises to boost the bank's financial performance will be an important factor in the kind of reception future mega-listings from China get from the market, according to Yang Liu, managing director of boutique fund house Atlantis Investment Management (Hong Kong). 'It's very important,' she says. 'This one has been talked about by the market for two years before the listing.' In particular, BoC HK is expected to be a role model for the other Big Four mainland banks which are expected to follow in its footsteps and seek listings in the next few years. 'We have had experience with listing state-owned enterprises since 1993,' says Kwong Ki-chi, chief executive of Hong Kong Exchanges and Clearing. 'Bank of China is slightly different from many others because its major shareholder is the Bank of China in China, but it is a Hong Kong-registered company and its activities are essentially Hong Kong-based. 'But, of course, as a new type of enterprise for listing in Hong Kong it will have a demonstration effect for other financial institutions in China.' Driving both the listing of BoC HK and its peers in the mainland is the opening up of China's financial industry to foreign competition in the wake of entry to the World Trade Organisation. The capital raised from the BoC HK will be used by the parent to shore up its balance sheet and assist in bringing its lending processes up to global standards. Huge amounts of capital must be raised to restructure state-directed lenders weighed down with a legacy of bad loans into cleaner institutions running on commercial lines. The enormous amount of preparatory work to be done on Bank of China proper, Industrial and Commercial Bank of China, the Agricultural Bank of China and the China Construction Bank, means they will probably not be listing for 'at least two years', Ms Liu says. Ahead of the Big Four may come fifth-ranked Bank of Communica-tions, based in Shanghai, which is considering a foreign listing after selecting a strategic overseas investor. There has been a hiatus in the flow of big privatisation deals coming down from the mainland since the US$1.4 billion listing of CNOOC in February last year, although the Aluminium Corp of China did launch a smaller US$500 million offering in December. The delay may be partly due to Beijing making BoC HK a priority before allowing other big offerings to come to market, according to analysts. If the market responds favour-ably to the bank, it could be the signal Beijing and their investment bankers have been waiting for to push other big listings forward. Among the deals waiting in the wings are the US$5 billion privatisation of China Telecom and the US$500 million listing of Air China, which would help push the mainland's share of Hong Kong's market higher than the 22.88 per cent that UBS Warburg calculated it was at the end of last year. Some analysts believe that years down the track, the Hong Kong market will be dominated by Chinese companies as it matures into a truly national exchange for the Greater China region. Although technically a Hong Kong company, the Bank of China offering has faced the kind of questions about the quality of its fundamentals and fears of political interference that have been levelled at mainland companies. Bank of China executives have pitched the offering to fund managers on the basis that asset quality and financial performance will improve as a listed company responds to shareholders. Whether they deliver on the promises remains to be seen, but some benchmark-driven fund managers will feel compelled to buy the stock because of its sheer size. The bank has priced its shares at HK$8.50, giving it a market capitalisation of HK$89.84 billion and making it the seventh biggest stock on the Hong Kong market. Companies are usually required to trade for two years before being included in the Hang Seng Index. But Bank of China's huge market cap means a waiver is likely to be applied. China Mobile, the biggest mainland company listed in Hong Kong, had to wait only three months before joining the index, says Vincent Kwan, general manager of the benchmark's compiler HSI Services. MSCI, which produces a widely followed series of benchmarks, is also likely to quickly include BoC HK in its key regional gauges. It has the potential to get even bigger, Ms Liu says. Instead of the parent seeking a separate listing for its mainland operations, BoC HK could be used as an acquisition vehicle. 'They could acquire more assets like China Mobile,' she says. 'I think it is likely once their business is in order and market conditions are better. '