Foreign Firms Line Up to List in China - Wall Street Journal (blog)

By WSJ Staff

Long-delayed plans to let foreign companies list their stocks in China could move ahead in 2013. Much of the technical work on a listing venue has been finished, and the naming of new leadership, following a once-in-a-decade transition this fall, is expected to lead to a broad range of policy initiatives.

Since plans for the so-called international board were announced in 2009, more than 300 international companies have contacted the China Securities Regulatory Commission and expressed interest in listing on the board, said a banker involved in the effort to launch the venue. A number have already hired bankers to handle their potential listings.

The commission couldn’t immediately be reached for comment.

Several companies have said publicly that they want to list HSBC Holdings PLC , for example, has said repeatedly that it wants to join the international board. The bank is already prominent in Hong Kong and hopes to expand on the mainland.

“Based on speeches from senior officials from China’s securities regulator and [the] Shanghai Stock Exchange, China is close to completing all the preparatory work needed to launch its international board,” said Li Kefei, head of Chinese equity capital markets at UBS Securities. “It is possible that the new trading platform may open as early as next year.”

China disclosed plans for the new board, where shares in foreign companies would be denominated in yuan, as part of a broader effort to make Shanghai a global financial hub by 2020. The listing initiative also fits with plans to internationalize the currency.

But three years later, the board still awaits approval from China’s cabinet, the State Council. The State Council is holding off because it doesn’t want to flood the market with new listings at a time when China’s stock market is falling. according to bankers working to set up the board.

China’s stock market has been among the worst performers world-wide in recent years, with the benchmark Shanghai Composite Index losing 22% in 2011 after falling 14% in 2010. It is down 5.5% this year, compared with an 11% rise in the Dow Jones Industrial Average over the same period.

Still, the broader framework needed for launching a yuan-denominated international board is ready. Some of the completed rules include how to list foreign companies and settle the trades, say bankers and lawyers working on the rules.

China is likely to allow these companies to repatriate funds raised via local listings even though there are restrictions on converting the yuan, they say, although this hasn’t been finalized.

“The continued yuan internationalization is expected to ease the concern of channeling proceeds from onshore to offshore,” said Fang Fang, chief executive of China investment banking at J.P. Morgan Chase & Co .

But there are still issues, including how multinational firms will report their earnings, that the China Securities Regulatory Commission will have to settle, bankers and lawyers working on the board said.

“Will financial statements need to be prepared in accordance with Chinese accounting standards and will audit reports have to be issued by China-accredited audit firms, an added cost?” said Hubert Tse, a Shanghai-based partner with Chinese law firm Boss & Young. Mr. Tse has advised companies seeking listings in China.

Beyond raising funds, a bigger advantage of a Chinese listing is an improved profile in China, say people involved with the board. With a bigger profile, international companies can expand sales in one of the world’s fastest-growing consumer markets, win contracts domestically and form joint ventures with domestic players.

But while there are signs the board may be launched as soon as next year, foreign companies will have to get in line, say bankers. The first companies to list there are likely to be Chinese companies that listed in Hong Kong in the early 1990s as “red chips,” but never listed on the mainland. These companies, such as cell phone network operator China Mobile Ltd . and oil firm CNOOC Ltd . listed in Hong Kong through offshore vehicles, even though their main businesses were in China.

“It is natural that some of the red chips are most likely to get listed first,” said J.P. Morgan’s Mr. Fang.

-Amy Li