China Depositary Receipts Face Convertibility Hurdle, Neoh Says
By Michael Forsythe
Beijing, June 28 (Bloomberg) -- China depositary receipts, a proposed new class of securities, may not be convertible into the underlying foreign shares because of currency restrictions, said Anthony Neoh, chief adviser to the country's stock regulator.
The idea of a depositary receipt is that it may be swapped for the main stock, and lack of convertibility may hamper plans by China Mobile (Hong Kong) Ltd. and other companies to sell shares in China, Neoh said at a Beijing conference.
``The problem is that if you change an underlying share which is outside of China, you basically have to move money outside of China,'' Neoh said. ``The closure of the capital account does not allow that.''
Overseas-incorporated companies backed by China, such as China Mobile, a unit of the country's largest mobile phone company, want to sell depositary receipts at home where shares trade at much higher prices than abroad.
In Shanghai, yuan-denominated Class A shares trade on average at 59.75 times earnings. Constituents of Hong Kong's benchmark Hang Seng Stock Index trade at 17.62 times earnings.
At China Mobile's annual shareholders meeting this month, Company Chairman Wang Xiaochu said convertibility of the new class of securities ``is the biggest issue that we and the regulatory body are now dealing with.''
Neoh said China's government may give ``special dispensation'' to Hong Kong companies for the sale of convertible depositary receipts or may instead allow ``dirty'' receipts not convertible into Hong Kong-listed shares.
``I don't know whether the companies want that,'' Neoh said. ``It is sort of exactly like an A-share.'' |
