HSBC to Trade Shares in China

The famous international banking company HSBC Holdings plans to be the first foreign company to be listed in China’s yuan-denominated A-share market.

A lot of attention was paid to the news about the HSBC Holdings’ plan to be listed in China’s A-share market. However, without the clarified regulations, the listing of foreign companies in China may only be seen after a while.

According to the news from Xinhua News Agency, HSBC Holdings plans to be listed in China’s A-share market next year. The amount of fund raised will be between 3 billion to 5 billion US dollars. HSBC Holdings has also talked with the security regulatory department in Mainland China. However, whether to issue the Chinese Depositary Receipts (CDR) or to issue stocks in the A-share market directly has not been determined.

The Chinese Depositary Receipts means that the listed companies entrusted a part of foreign capital shares which has been issued to the Chinese depositary banks. Then the banks issue the depositary stocks in the stock market of Mainland China.

Vincent Cheng, Chairman and Executive Director of HSBC Asia, also talked about the plan of being listed in China’s A-share market in front of the public.

Actually, HSBC Holdings is listed in Paris, New York and Bermuda besides London and Hong Kong as the primary listing places. In the USA, the listing is realized through American Depositary Receipts (ADR). In this March, HSBC Holdings began the rights offering for the ordinary shareholders, through which it accumulated 17.8 billion US dollars as the complementary capital.

Some analysts thought that its shareholders’ consent is necessary if HSBC Holdings wants to issue stocks in the A-share market. In contrast, CDR is the stock issuing which can not affect the stock rights of shareholders. In addition, it is more convenient to conduct financing in Hong Kong than in Mainland China. Since the company went public in the USA through ADR, it is quite possible for it to be listed in China through CDR.

Prof. Guo Tianyong, Director of the Chinese Banking Industry Research Center, Central University of Finance and Economics, thought that the possibility for HSBC to issue stocks in China’s A-share market depends on whether its board and shareholders are willing to accept the stock dilution. In addition, Shanghai Stock Exchanges has no experience in CDR. Therefore, to issue stocks directly in the A-share matches the status quo of Chinese capital market.

Sandy Flockhart, President of HSBC Asia, said that China is the key factor for the company to achieve increase in revenues. He also said that China will be the key place for the investments of HSBC Holdings in the next 25 to 50 years.

In the first half of this year, HSBC Holdings saw profit before tax of 752 million US dollars in Mainland China, taking 14.98% of the global profits and more than one third of the profits in the Asian area except Hong Kong. Both proportion saw an increase compared with last year.

It is necessary to mention that HSBC’s total assets amount is 2.42 trillion US dollars, larger than the three largest state-owned banks in China Industrial and Commercial Banks of China (ICBC), China Construction Bank and Bank of China. However, their profit capacity is equal with each other.

In the first half of 2009, HSBC Holdings earned 3.347 billion US dollars, decreasing by 4.375 billion US dollars compared with the same period of 2008. ICBC, the largest domestic bank in China, had the total assets amount of less than 11 trillion yuan (USD 1.61 trillion) in the first quarter of 2009, but it earned 35.15 billion yuan (USD 5.146 billion).

It is said that HSBC Holdings is not the only foreign company planning to be listed in China’s A-share market. Bank of East Asia, which has been listed in Hong Kong, wants to do the same thing. According to a source from this bank, the detailed plan has not been formed. The source is not willing to give out any further information.

Undoubtedly, the listing of HSBC Holdings or some other famous foreign companies will play an important role in building Shanghai into an international financial center and the construction of international board. But what effect will the internationalization of China’s A-share market be exerted over the world is still unknown.

Prof. Guo said that it is good to attract some companies with certain fame and strength, like HSBC Holdings or Coca Cola. The foreign companies have excellent performance in their corporate management. Their listings in China’s A-share market are good for the Chinese domestic companies to consummate their operation structure.

Jin Yanshi, Chief Economist of Sinolink Securities, seems to have a different opinion towards this matter. In his opinion, it is not a proper to talk about the listings of foreign companies in China. But Prof. Guo said that it is not important that which kind of enterprises should be listed. The international resource enterprises are also welcomed in China. Most of the Top 500 global companies have businesses in China. To be listed in China is good for them to know and develop the Chinese market.

According to the source, HSBC Holdings raised a large amount of capital through rights offering. To be listed in A-share market doesn’t mean that HSBC Holdings needs capital.

“HSBC Holdings’ listing in Shanghai Stock Exchange can help Shanghai in building an international financial center. A good matter for the whole country,” said Prof. Guo. “The international board” has been listed into the program of building Shanghai into an international financial center.

UBS Securities once published a report, classifying three kinds of companies that can be listed in China’s A-share market.

First one: the foreign companies having a lot of businesses in China. These companies set up a manufacturing base in China and consider China as one of their main markets. These companies include: Coca Cola, P&G, Unilever, Carrefour, Wal-Mart, Siemens, Volkswagen, GM and so on.

Second one: Hong Kong blue chips companies, which are the companies registered, headquartered and listed in Hong Kong, like HSBC Holdings, Bank of East Asia, Foxconn and the like. These companies also have many businesses in China and have strong demand for Chinese yuan.

Third one: Hong Kong red chips companies, which are the companies registered outside of China, listed in Hong Kong but headquartered in Mainland China, including China Mobile, Lenovo and CNOOC, etc.