An unwritten rule, supposedly set by China's securities
regulator allowing mainland-incorporated companies to list overseas
only if they seek to raise over US$1 billion, may queer the pitch
of State-owned enterprises (SOEs) planning a similar listing.
Though the China Securities Regulatory Commission (CSRC)
yesterday refused to comment on a Financial Times report on
the existence of the rule, industry insiders said the CSRC does
indeed follow such a principle.
"The rule was introduced in November. The CSRC hasn't approved
any overseas listing since," said a local lawyer familiar with Hong
Kong listing deals. "That's because it's very hard to meet the
standard, except for large companies such as the Agricultural Bank
of China."
Financial Times reported that Chinese regulators waive
the US$1 billion principle in cases of simultaneous listings on the
mainland.
But Qiang Gaohou, a Beijing-based lawyer with the Global Law
Office, said companies raising funds less than US$1 billion are not
allowed to issue H shares under any circumstances.
"It's hard to tell whether the rule regarding that specific
number exists. The CSRC is flexible," CSRC spokesman Liu Fuhua said
yesterday.
Liu said the regulator doesn't have such a rule on paper but
that it is encouraging more companies to list in Shanghai and
Shenzhen.
The "rule", however, is expected to take its toll on the Hong
Kong stock market. For years, the city has been a destination for
mainland's State-owned companies to raise funds, especially when
the mainland stock market was in a four-year slump.
So far, 96 H-share companies have listed on the main board in
the Hong Kong bourse while 45 smaller ones are listed on the GEM,
the second board of the Hong Kong stock exchange.
But the rapidly expanding mainland market after successful
securities reforms since 2005 and a spurt of cash inflow into
mainland bourses is increasingly creating a suitable environment
for companies to issue A shares.
On April 10, the total value of the mainland market hit 13.77
trillion yuan, for the first time exceeding Hong Kong's 13.69
trillion yuan.
Until November, the CSRC had been following the so-called "4,5,6
rule" to approve SOEs for overseas listings.
By this rule, a company must have net assets of over 400 million
yuan and a net profit of over 60 million yuan if it is to list
overseas. The companies were also required to raise over US$50
million in an overseas initial public offering in order to
list.
"The current stipulation of US$1 billion is very restrictive
compared with the former target of US$50 million," Qiang said.
(China Daily April 17, 2007)