EQUITY
Offshore
issuersaimto
enterChina’s
forbidden
financialcity
Afteryearsoftalkbutlittleprogress,themainland’sregulatorscouldsoongivethego-aheadfor
internationalissuersandred-chipcompaniestolistsharesinShanghai.AaronPaninvestigates
whowillbethefirst.
F
For 60 years the Chinese communist party has jealously guarded the once the market opens, it’ll be hard to stop the momentum. You could
doors to its local stock market, preventing any outsiders from access- see a whole wave of them after that.”
ing its isolated investor base. And foreign companies have been wait- With the CSRC making some positive noises, foreign companies
ing anxiously to see whether this watchful policy could change. could finally gain access to China’s financial Forbidden City in the com-
In recent weeks, the patience of these corporates has been reward- ing months.
ed. Amid increasingly rosy economic conditions, signs are emerging
that the country’s rulers could be set to cautiously allow some hand- HSBC’SHOMECOMING
picked offshore-listed companies into the mainland’s stock Many issuers believe that it’s not before time. A few years ago there
exchanges. were signs that Beijing was considering opening the doors to this closely
Deputy commerce minister Chen Jian said in August that the gov- guarded market.
ernment was working to “actively guide high-quality foreign firms to Back in 2006, the mainland authorities started to draft rules to allow
go public in China”. At the same time, Shanghai vice-mayor Tu red chips to issue China depositary receipts (CDRs), instruments that
Guangshao also expressed support for the introduction of an “inter- would allow them to float shares in Shanghai by selling Hong Kong
national board” at the Shanghai Stock Exchange. shares to A-share investors.
China Securities Regulatory Commission (CSRC) vice-chairman The onset of the global financial crisis in 2007 and 2008 quickly put
Yao Gang said in May that foreign companies would eventually be an end to such discussions. Yet it has taken less than a year for China’s
permitted to list in Shanghai and, according to local media, the regu- economy and its stock markets to rebound from the nadir of this crisis,
lator set up a group under his supervision that is specifically dedicat- spurred by a Rmb4 trillion ($585 billion) stimulus package.
ed to the task of building an international board. The country’s GDP rebounded, and looked set to exceed 8% growth
If the noises become concrete steps – and it’s worth remembering for the whole of 2009, while the Shanghai Composite Index had surged
that such hopes have led to nothing in the past – it could potentially by more than 82% between January and early December.
lead to a set of hand-picked international corporates and Hong Kong- Set against this rosy scenario, it’s hardly surprising that international
listed red-chip companies looking to list in Shanghai or Shenzhen in companies and red-chip businesses alike are clamouring for Beijing to
2010 and 2011. let them tap into onshore investment and capital-raising opportunities.
HSBC and Standard Chartered want to be among the first. HSBC is particularly keen to make an entrance. The UK-headquar-
“A successful listing in Shanghai will help the group’s reputation tered bank is in talks with mainland government officials to hold a
greatly,” says Peter Wong, an executive director and general manager Shanghai IPO that could raise between US$3 billion and US$5 billion,
of HSBC Holdings in Hong Kong. according to analyst estimates.
The appeal of a mainland listing is obvious. China could become Given that the ‘S’ in the bank’s acronym refers to Shanghai, a
the second-largest economy in the world in 2010, and its economy is reminder of its long history, such a listing could be seen as a homecom-
predicted to grow at 10% during the year. Its middle class is burgeon- ing of sorts. But it is also part of a broader strategy to penetrate the
ing, and the demand for better financial services and goods is mount- mainland. In September, HSBC announced that chief executive Michael
ing daily. Geoghegan would move to Hong Kong from London in February, while
“The economics make a Shanghai listing a no-brainer,” says one it also plans to form a joint venture with China’s Industrial Securities.
China equity capital markets (ECM) banker at an international firm. A local listing could transform millions of domestic Chinese share-
“Valuations are much higher in China because the market is euphoric holders into potential customers by enabling HSBC to increase renminbi
at the moment. We will see a couple of red chips listing in 2010 but loans as well as rolling out credit card operations more quickly.
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