On Hold: Shanghai’s International Listings

Shanghai Stock Exchange officials recently announced that they had completed all technical aspects involved in the listing of foreign company shares and that the Shanghai International Board will launch when the time is “ripe.”

The comments by top exchange officials suggests that shares of companies such as Hong Kong and Shanghai Banking Corp., which was founded in Hong Kong in March 1865 and in Shanghai one month later, could be trading in China as early as tomorrow or, for that matter, whenever the Beijing powers that be feel like it.

汇丰管理人员拒绝评论关于此类前景的记录，但一位官员们说出了记录，“我们希望尽快看到这一点。”

Chinese officials have been drafting the policy framework of the Shanghai International Board even before the breakout of the global financial crisis, but it was only in the past two years that they’ve put in place technical specifications and begun testing settlement and clearing mechanisms.

Some observers are willing to venture a more specific interval for the launch. “It’s likely to be launched in the second half of 2012 as senior China Securities Regulatory Commission officials have publicly discussed the launch,” says Hubert Tse, a partner at Shanghai law firm Boss & Young, who represents many U.S. and European assets managers and private equity investors in China. China’s cabinet, the Beijing-based State Council, has set the goal of making Shanghai an international financial center by 2020, inclusive of partial or full convertibility of China’s currency, the Renminbi, also known as the yuan, and launching the International Board well before that time is a priority for top officials, says Tse.

Officials are still in the process of finalizing details, such as rules allowing for partial remittance abroad of proceeds raised in China, says Tse.

Foreign companies with operations in China are eager to list shares in China as it would mitigate their foreign exchange exposure as well as help them to get around capital exchange restrictions, such as regulatory approval for each tranche of foreign currencies remitted into China. But Tse says officials likely will give priority first to major Chinese companies that are listed overseas, such as mobile operator China Mobile Ltd., personal computer maker Lenovo Group Ltd., and offshore oil explorer CNOOC Ltd., all of which are listed in Hong Kong as H shares.

Nevertheless, recent international issuers of RMB denominated corporate debt in Hong Kong, also known as dim sum bonds, are all looking at Shanghai’s future International Board as an alternative way to finance China's expansion using local currency. McDonald’s Corp. became the first to issue corporate debt in RMB in August 2010 when it sold 200 million yuan ($29.5 million) worth of bonds to fund new restaurant openings in China. Caterpillar Corp. followed by raising 1 billion yuan through a bond issue in November 2010 and another for 2.3 billion yuan a little more than a year later. Other issuers include Anglo-Dutch conglomerate Unilever Inc., which raised 300 million yuan worth of corporate debt.

A Shanghai listing will enable international companies to both raise capital and refinance in China without the need to repatriate RMB or U.S. dollars from offshore. This will make raising funds in China significantly more convenient for them in the future and give them a huge competitive advantage, says Tse.

“所有主要公司都希望列出CASTPLAB，英国银行的一般电气，英国银行，”香港全球金融战略和亚洲银行国际证券股份有限公司的全球金融战略和亚洲银行研究负责人。Schulte表示，国际委员会将成为全面人民币国际化的前奏，在未来几年中，中国货币最终成为全球储备货币。所以那些公司仍然必须竞赛他们的时间。

“This is a five-year project,” Schulte says. But issuers won’t have to wait forever, he says. “Hong Kong as an international financial center will be under threat by the end of the decade,” Schulte noted, adding that “there are huge pools of insurance and pension funds in Shanghai.”