The increased sophistication of the mainland's capital market
and a flood of funds into Shanghai and Shenzhen's bourses are
creating good conditions for red chips to list at home.
Red chips are stocks of companies incorporated and listed in
Hong Kong, but whose main businesses are on the mainland. Most of
the red chips are large conglomerates that listed on the Hong Kong
market in the 1990s.
By the end of November, 85 red chips with a combined market
value of HK$2 trillion were listed in Hong Kong, accounting for 21
percent of the bourse's overall market value 3 percentage points
higher than those of H shares, which are of mainland incorporated
companies listed in Hong Kong.
Red chips' eagerness to return to the home market is inspired by
a 127 percent main index growth in Shanghai in 2006, and also
encouraged by the successful dual listing model of blue chips such
as the Industrial and Commercial Bank of China.
"China's securities regulator is creating favorable conditions
for red chips to come home," an official with the China Securities
Regulatory Commission said.
Listing regulations currently do not allow overseas incorporated
companies to directly list on the mainland.
However, as red chips are in fact mainland companies, it will
not be a big problem for them to list in Shanghai through some
share restructuring.
"It is hard to change the regulations under the current
circumstances, but red chips can find a back door," said Li
Yongsen, a professor with Renmin University of China.
Once the red chips return, they are expected to lead the
market's growth in 2007, analysts say. "The red chips should return
as soon as possible as the flood of new funds into the A-share
market has created a great demand for new shares on the supply
side," said Zhao Jianxing, with China Merchants Securities.
China Mobile is likely to become the first overseas incorporated
company to list in Shanghai.
The telecom carrier, the largest among all the overseas listed
mainland companies in terms of market value, is expected to launch
its A-share listing in the first half of 2007, a local media report
said.
It said the telecom carrier has already chosen its underwriters
to sell A shares. The company's spokesman however later denied the
news.
The report also said the company had chosen to directly issue A
shares in Shanghai, abandoning its former plan to issue Chinese
Depositary Receipt, a certain amount of investment units comprised
of Hong Kong shares sold to A-share investors.
(China Daily January 4, 2007)