Reforms pave way for mainland lender's Hang Seng debut The first H-share blue chip is expected to make its debut late in August after long-awaited changes allowing inclusion of Hong Kong-traded, mainland-registered companies into the Hang Seng Index were announced yesterday. China Construction Bank (CCB) is expected to lead the way into the elite group in a dramatic reform of the 37-year-old index. H shares have been excluded until now because they were not fully free-floated: mainland restrictions meant part of their shares were non-tradable. But pressure for change has mounted on index compiler HSI Services since CCB came to market in October with all its shares tradable. Critics said the index of the 33 biggest companies in Hong Kong was unrepresentative with the exclusion of CCB, the mainland's third-largest commercial lender which had capitalisation of $735.85 billion at yesterday's close and has been among the 10 most-traded stocks every day since it listed. 'The new policy will ensure the benchmark index sustains its representation for the Hong Kong stock market,' HSI Services director and general manager Vincent Kwan said yesterday. An H-share company will be eligible if it: Has listed 100 per cent of its ordinary share capital as H shares in Hong Kong; Has completed the process of share reform, so that it has no unlisted share capital; or Has no unlisted share capital for new H-share initial public offers. That means mainland companies with listed A shares on the mainland and H shares in Hong Kong will also be eligible if they have no unlisted share capital. The index's lack of representativeness was well demonstrated in the first day's trading of the Year of the Dog on February 1. On that day, the high-flying H shares pushed market capitalisation to a record high of $8.92 trillion, while the benchmark index fell 10.84 points, or 0.07 per cent, to 15,742.30. Apart from CCB, Angang New Steel, China Shipping Development and ZTE Corp had satisfied the eligibility requirements, the index compiler said. 'It is expected that eligible H-share companies will enter the stock universe ... by the end of August,' Mr Kwan said. He added that there was no plan to put a cap on H-share representation in the index. A further announcement will be made about how H-share companies will be handled in calculation of the index. A senior portfolio manager at China Insurance Group Assets Management, Shum Wai-nap, said the move greatly enhanced the representation of the index. 'As more and more giant mainland companies list in the local bourse, the blue-chip index just cannot ignore their presence and influence on the market,' he said. Shareholder activist David Webb said such changes were inevitable as the index needed to prepare for forthcoming mega-mainland listings including Bank of China (BOC) and Industrial and Commercial Bank of China (ICBC), which could come with a 100 per cent free float. It is believed BOC will list in Hong Kong in the first half of the year, and ICBC by the end of the year. The index compiler also announced the quarterly index reshuffle yesterday. China Netcom Group gained a place, ousting Denway Motors. For the Hang Seng China Enterprise Index, or H-share index, the number of constituents was cut from 40 to 37. Shenzhen Expressway, China Eastern Airlines, TravelSky Technology, Yizheng Chemical and Zhenhai Refining were removed, while Dongfeng Motor Group and China Construction Bank were added. All changes will go into effect on March 6.