China’s tightened listing rules for some ‘red chips’ in Hong Kong raise concerns
The CSRC asks some Hong Kong listing candidates to change their red-chip structure and issue H shares
A memo circulating in mainland China’s financial community has raised concerns that Beijing plans to ban certain Chinese companies from listing in Hong Kong via a red-chip structure, with analysts fearing that this could create uncertainty for new listings in the city.
According to a memo seen by the South China Morning Post, some red-chip companies – entities registered overseas but with assets and businesses within China – seeking regulatory approval for an initial public offering (IPO) in Hong Kong have been asked to change their structure.
The firms have been told to instead issue H shares – companies incorporated in mainland China issuing shares in Hong Kong, according to the memo.
While some firms had received such a notice from the China Securities Regulatory Commission (CSRC), industry sources said that the authorities were focusing on companies that had most of its operations and assets in China and did not necessarily need offshore structures but intentionally altered their corporate framework to facilitate an IPO in Hong Kong.
Such companies are considered by some industry experts to be “new red chips”, unlike previous red chips, which typically use the offshore structure to include foreign investment in some restricted sectors like internet.
“The authorities aim to prevent these [new red chip] companies from disposing of their assets on offshore markets after listing,” the source said.