EQUITY
Analysts are certainly bullish on the implications should HSBC be The lender reported a 9.7% increase in pre-tax profit to US$2.84 bil-
allowed to list in Shanghai, in addition to London and Hong Kong. lion in the first half of the year, thanks largely to its emphasis on Asia.
“We believe the branding, advertising and positioning advan- One other bank interested in a Shanghai listing is Hong Kong-
tages of being one of the first listed foreign banks in China could be based lender Bank of East Asia (BEA).
significant, given the size and growth prospects of China’s banking The bank’s China unit contributed 40% of the group’s pre-tax
and consumer financial services market,” says Roy Ramos, a banking profit in the first half this year and BEA is looking to further expand
analyst at Goldman Sachs in Hong Kong. its mainland business by opening new branches as well as aiming to
list its China unit in the second half of next year.
STANCHART’SSTRATEGY “We hope that BEA can list on China’s stock market as early as pos-
Standard Chartered is keen to pursue a similar strategy. The bank sible,” BEA deputy chief executive Brian Li tells Asiamoney. “[It] is
has long referred to itself as an emerging markets bank, and is wide- very important for the bank as the enlarged capital base will facilitate
ly touted to be also vying for a Shanghai listing as early as possible. our expansion plans. Moreover, the listing will also help enhance the
Peter Sands, chief executive of StanChart, has previously corporate image and reputation of BEA in China.”
declined to comment on reports that it is seeking a Shanghai listing He forecasts BEA’s mainland loan growth could surpass that of its
but admits that the bank is “always exploring options of listing in Hong Kong units and contribute more than 50% to the group portfo-
various markets”. lio in the next few years, with aims for 80 mainland branches by the
A spokesperson for StanChart adds that the bank is “actively con- end of this year and 100 by the end of 2010.
sidering a listing of its shares in India” as well as “exploring the pos-
sibility of listing in China”. RED-CHIPRUSH
Standard Chartered would also be welcomed in the mainland, While the three banks prepare themselves for onshore listings, it is
especially given its close links to resource-rich countries in Africa. the prospect of Hong Kong-listed red chips returning home that could
excite onshore investors even more.
Red-chip companies are China-invested enterprises incorporated
COULDSHANGHAISTEALHONG
and listed overseas, mostly on the Hong Kong stock exchange, with
their main businesses and net profits generated from the mainland.
KONG’SFINANCIALLUSTRE?
The classification was created in the 1990s as a means for onshore
businesses to access the flourishing Hong Kong stock market.
Once Chinese authorities do open up the Shanghai stock
Red-chip listings in Hong Kong made sense at the time, because
market to red chips and foreign companies, the implications
the local market was small and thinly traded. But it has flourished in
for the city’s financial markets could be huge.
the years since. And now the red chips find themselves having diffi-
One question that observers will inevitably start asking
culty accessing the very market in which their operations are based.
once more is whether the city can replace Hong Kong as
As Hong Kong-listed, overseas-incorporated companies, red chips
China’s international financial centre.
are currently barred from launching A-share IPOs in the mainland.
Is there are real possibility of this ever taking place? Some
But the new rules being drafted by the CSRC would open up the
observers think so.
domestic market to them.
“Further down the track, with a fully convertible
According to the new regulations, red chips wishing to list in
renminbi, then Shanghai can emerge as China’s financial
Shanghai would have to meet a few criteria. They would have to have
centre,” says Erwin Sanft, head of China and Hong Kong
been listed on the Hong Kong stock exchange for at least one year,
equities research at BNP Paribas. “Its scope is bigger and
have a market capitalisation of HK$20 billion (US$2.58 billion) or
broader and it has things that Hong Kong is missing.
more, be able to show they had made net profits of HK$2 billion or
However, its development hinges on currency convertibility.
more over the previous three years and generate at least half of their
For now it is a domestic financial centre.”
operating assets or earnings from the mainland.
Others are less hopeful.
There are currently more than 90 red chips listed in Hong Kong,
“Until China is a fully open country then Shanghai won’t
according to the city’s stock exchange data, and about 20 of these
be able to fulfil its responsibility and become a full
would qualify to list under those requirements.
international financial centre,” says one equity capital
“Within the next 12 months there should be at least a handful of red-
markets banker in Hong Kong. “It won’t happen anytime
chip companies or foreign companies listed in Shanghai,” says Jing
soon. Hong Kong isn’t 100% free but it’s pretty close and you
Ulrich, chairman of China equities at J.P. Morgan. “There is strong sup-
are not going to get that in Shanghai. I don’t think the
port for this initiative and I think the conditions are ripe.”
powers-that-be want to diminish Hong Kong’s stature.”
Chinese authorities are keen to attract the larger and more successful
Most analysts agree that Shanghai’s ability to transform
red-chip firms because they would help develop the A-share market.
itself into an international financial centre will remain
These companies already have experience of operating under stringent
limited as long as the renminbi does not have full
listing rules overseas and enjoy good profits.
convertibility, capital controls remain in place and questions
over the predictability of regulatory oversight exists. None of
QUEUINGUP
these issues look likely to disappear in the next few years.
China Mobile is likely to be at the front of the queue for red-chip issuance.
This doesn’t mean Hong Kong should rest easy. Shanghai
Currently the world’s largest mobile operator by subscribers – at a
might not be able to eclipse its southern cousin, but that
whopping 513 million and counting – China Mobile is also the largest red
doesn’t mean it cannot become a more viable competitor.
chip listed in Hong Kong. It first began seeking a listing in Shanghai earli-
“In the long run, the bottom line is that competition will
er this decade, but made very little progress due to a lack of government
grow between the two markets,” says Vincent Chan, head of
policy support.
China equities research at Credit Suisse.
Bankers say that the mobile company could conduct a listing as early
as mid-2010, and China International Capital Corp. (CICC) is believed to
have already been hired to underwrite such a Shanghai flotation. CICC,
26 DEC2009/JAN2010 ASIAMONEY
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