dual-currency IPO

HK renminbi equity market push needs wings

The Hong Kong stock market is getting closer to seeing its first dual-currency listing but challenges remain.

Hong Kong’s push to develop a renminbi equity market may be falling flat despite a possible IPO from Hong Kong Airlines, according to bankers and investors.

The short-haul carrier is aiming to raise $500 million in the city through a dual-currency listing, according to two sources familiar with the situation.

It could file its application by the end of this month and list on the main board by the end of the year, the sources said. JP Morgan is sole sponsor on Hong Kong Airlines’ IPO transaction.  

The deal would allow Hong Kong Airlines to sell two sets of shares, in renminbi and Hong Kong dollars, and would be the first dual-currency IPO in the city.

Each set of shares carries its own stock code but they are fully fungible and stakeholders have the same rights.

However, hopes the deal could re-ignite the renminbi equity market might be misplaced as confidence and visibility remain low despite a concerted effort by the Hong Kong Stock Exchange to educate investors during a lengthy gestation period.

Hui Xian Real Estate Investment Trust raised $1.6 billion in a renminbi IPO in April 2011. One year later, Hopewell Highway Infrastructure issued Rmb386 million of new shares denominated in renminbi through a placement. 

The lack of activity spurred the HKEx to lobby almost every bank in an effort to promote renminbi IPOs for a long time, according to banking sources. It has also set up a platform to accommodate dual-currency IPOs and held briefing sessions for brokerages and media about how renminbi IPOs work.

“Leveraging renminbi internationalisation and developing products that trade in Rmb are part of [HKEx’s] business strategy,” a spokesperson with Hong Kong Exchange and Clearing told FinanceAsia.

Dual-currency IPOs, however, face a lot of challenges, according to bankers and investors.

Only companies offering HK$2 billion ($300 million), or HK$1 billion for each tranche, have a decent chance to complete successful dual-tranche listings, they said, because such companies can guarantee healthy liquidity in the secondary market.

Hui Xian Reit, the first company to sell renminbi shares in Hong Kong, saw its shares slide 35% since listing.

The end of the renminbi’s appreciation has made renminbi IPOs even less attractive. The currency depreciated as much as 3% this year and analysts believe the depreciation trend will continue to year-end.

Being the first one also means there are many risks to take. Potential technology problems, more time and cost spending or investors’ unfamiliarity with the any factor would stop issuers from trying.

“Trying out a dual-currency model is a complicated decision for all participants in IPOs, including issuers, sponsors, lawyers and regulators,” said Pamela Chung (left), a managing director with Computershare, a share registry service provider in Hong Kong.

Big issuers such as Chow Tai Fook Jewellery, Haitong Securities and WH Group were rumored to have considered dual-currency listings at one point but all ultimately chose Hong Kong-dollar IPOs.

“Investors won’t tell the pros and cons of the new model if there is not enough market education,” said Chung, who has helped about 400 companies list on the city’s bourses.

Of course, there are some positives. The dual-currency structure could offer some arbitrage opportunities for investors in trading between the two tranches, according to a source familiar with the situation. “How it could work is still unclear,” the source admitted.

Meanwhile, China is liberalising exchange rates and relaxing renminbi cross-border flows; and the mutual access arrangement between the Shanghai and Hong Kong stock markets should boost liquidity in the offshore renminbi pool.  

But until investors become more comfortable and confident with such listings, Hong Kong has its work cut out trying to convince a sceptical market that such deals have legs.

¬ Haymarket Media Limited. All rights reserved.
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