Red chips face hurdles to return to mainland
By Fei Ya (China Daily)Updated: 2007-04-10 09:16
Homecoming is clearly the flavor of the season, as far as
red-chip companies are concerned.
This year is set to see many of the Chinese conglomerates listed in Hong Kong head to the mainland market, following the trend set by the largest red chip, China Mobile.
CNOOC, China's top offshore oil company and the No 2 among red chips by market value, last month said it might float A shares this year if certain technical difficulties are sorted out.
Other large red chips such as COFCO International, the listed arm of COFCO China's flagship of grain, oil and foodstuff import and export and China Insurance International Holdings Co Ltd have also expressed their intention to list on the mainland.
The attraction of red chips and the mainland market is mutual. Excessive liquidity in the A-share market is piling pressure on the securities regulator to allow more companies to list in Shanghai and Shenzhen and the red chips are only too happy to grab the opportunity.
"The red chips and H-share companies should come to the mainland as soon as possible as the flood of new funds into the A-share market has created great demand for new shares," said Zhang Qi, an analyst with Haitong Securities.
But if a company wants to list directly on the mainland, it should be locally incorporated as Chinese laws do not allow overseas-incorporated companies to issue A shares.
"And it is impossible for Chinese regulators to change the law and permit all overseas-incorporated companies to issue A shares in the short term," Li Yongsen, professor with Renmin University of China, said.
According to Li: "The regulators are afraid that once the ban is lifted, many foreign companies will want to list on the mainland. The government certainly wants the red chips to come to the mainland market first."
The securities regulator prefers a direct listing model for red chips rather
than the Chinese Depository Receipt (CDR) route, an investment tool that
involves the sale of Hong Kong shares to A-share investors.
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