Lenovo’s shareholders give their overwhelming nod to company’s plan to sell Chinese depositary receipts in Shanghai’s Star Market

Shareholders of Lenovo approve by a majority its plan to issue CDR to raise funds on Shanghai tech board, Star Market

If successful, the personal computer giant will set a first example as a listed Chinese tech firm to raise fund via CDR

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Lenovo’s ThinkPad X1 Fold tablet computer, offering an immersive 13.3-inch viewing experience. Photo: SCMP

Published: 4:00pm, 4 Feb 2021Updated: 4:00pm, 4 Feb 2021

Lenovo’s shareholders have given their nod to an initial public offering of Chinese depositary receipts by the world’s largest personal computer maker on Shanghai’s Star Market, in a landmark sale that may encourage more overseas-listed technology companies to follow suit.

The plan by Lenovo to issue 1.3 billion CDRs, first announced in January, was approved by 99 per cent of shareholders, according to a filing to the Hong Kong stock exchange. Based on Lenovo’s Wednesday closing price in Hong Kong, the plan could raise HK$13.6 billion (US$1.8 billion). Each CDR represents one Lenovo share.

Unlike American depositary receipts (ADR) listed in New York, Lenovo’s CDRs will not be convertible, or fungible, to the company’s Hong Kong-traded shares, “in accordance with applicable laws and regulations,” the company said. The restriction, due to China’s closed capital account and non-convertible currency, is consistent with many Chinese companies selling dual-class shares between the capital markets of Hong Kong, and mainland exchanges in Shanghai and Shenzhen.

Still, the CDR sale by Lenovo, a technology behemoth with the gravitas of HK$117 billion in market value, is an endorsement of the Chinese government’s push to broaden the appeal of the domestic market to fundraising. For the Star Market, a successful listing by Lenovo would also be a publicity coup that helps overwrite the bad press caused by smartphone giant Xiaomi, which pulled its planned CDR issuance in 2018 indefinitely in favour of a Hong Kong listing.

Lenovo won shareholders approval to issue Chinese depositary receipts on Star Market. Photo: Reuters

“If Lenovo’s CDR issuance proves to be a success, this could encourage other offshore-listed companies to also raise funds on the Star Market,” said Bruce Pang, head of macro, strategy research at China Renaissance, adding that “a second listing in the A-share market is positive to its Hong Kong share price.”

Lenovo’s shares trade at 15.6 times current years earnings in Hong Kong, a fraction of the average price-earnings ration on the Star Market, which topped 90 times according to local media reports. The valuation gap could attract Chinese investors to pour their money into the Hong Kong stock exchange via the southbound Connect cross-border investment channel.

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