HSBC returns to China
China is stepping up preparations to allow foreign companies to sell shares in the world’s second- largest equity market, and HSBC Holdings Plc may be first in line for a listing.
The China Securities Regulatory Commission held an internal meeting in July to discuss setting up an international board on the Shanghai exchange on which overseas companies will trade for the first time, said a person with knowledge of the plans.
HSBC, founded in Shanghai and Hong Kong 144 years ago and based in London, has hired advisers for a Shanghai stock sale that may surpass $5 billion, people familiar with the matter said yesterday. Foreign firms will be able to tap a stock market that’s rallied 91 percent this year and is home to two of the world’s five largest companies by capitalization.
“Companies like HSBC, which plan to expand in China, will be able to facilitate that target through investors’ awareness and local cash” in Shanghai, said Ji Lei, who helps oversee the equivalent of about $1 billion at Harfor Fund Management Co.
So-called red-chip companies, those based in China and incorporated outside the nation, will also be allowed to list in China, the people said. Beijing-based China Mobile Ltd., the world’s biggest cell-phone operator by users, will be the first red-chip firm allowed to go public on the mainland, the people said. China Mobile is traded and incorporated in Hong Kong.
Foreign and red-chip companies will be required to have market value of at least 50 billion yuan ($7.3 billion) to list in China, the people said. A CSRC spokeswoman, who declined to be identified citing official policy, had no comment.
China Mobile Listing
China Mobile, whose parent is based in Beijing, may sell shares in Shanghai by the end of the year and has picked China International Capital Corp. to arrange the offering, the people said. The carrier went public in Hong Kong in 1997 and has a market value of $210 billion, making it the world’s fifth- largest company by that measure after Microsoft Corp.
Cnooc Ltd., the publicly traded unit of China’s third- largest oil company, may be the second red-chip company to sell so-called A shares, the people said. CICC, Goldman Sachs Group Inc.’s local securities joint venture and Citic Securities Co. have been selected to manage the sale, they said.
China Mobile is “interested” in seeking a share listing in China, said spokeswoman Rainie Lei in an interview. The company hasn’t filed an application for a stock sale as it’s still waiting for regulators to issue listing rules, she said. Lei declined to comment on the CICC appointment.
Xiao Zongwei, a Beijing-based spokesman for Cnooc, declined to comment.
HSBC, Europe’s largest bank by market value, would likely be allowed to list in Shanghai next year, the people said. The company, founded in 1865 as Hongkong and Shanghai Banking Corporation Ltd., has been traded in Hong Kong since at least 1891, according to spokesman David Hall.
“We are working toward an A-share listing,” HSBC Asia- Pacific Chief Executive Officer Sandy Flockhart said in an interview yesterday. “With our brand name and strength in China and the size of our investment in China, it’s appropriate that we have the ability to offer Chinese shareholders an easier way to buy into HSBC.”
The bank hired CICC and Citic Securities for the offering, two people with knowledge of the matter said. Hall said the bank has hired advisers. He declined to identify them or comment on the size of the sale.
HSCB operates the biggest network among foreign banks in China with 87 outlets. It plans to increase the number to 100 this year. Flockhart said HSBC got about 8 percent of revenue from China in the first half after certain adjustments.
Cooling the Market
Letting foreign companies sell stock may help the securities regulator cool a stock rally that has fueled concern that a bubble is forming. The benchmark Shanghai Composite Index trades at 38 times earnings, compared with 17 times for the Standard & Poor’s 500 Index.
“The CSRC is doing this partly to stabilize the market with large companies,” said Leo Gao, who helps oversee the equivalent of $1 billion at APS Asset Management Ltd. in Shanghai. “It’s good for the market in the long term, but it will have an immediate negative impact.”
China ended a nine-month moratorium on domestic IPOs in June as the stock market recovered. The five companies that went public since then gained an average 112 percent on their debuts, even after selling stock at the top end of ranges they marketed to investors.
China’s attractiveness as a fundraising center may be limited by its capital controls, which restrict companies’ ability to take funds out of the country.
“Without free flow of capital, the appeal of China’s capital market will be lackluster as it means you can’t divert the proceeds to where the money is most needed,” said Zhang Ming, secretary general of the international finance research center at the Chinese Academy of Social Sciences in Beijing. “It’s time for China to open its capital market on a step-by- step basis.”