Beijing opens market gates to foreigners (Part I)
china.scmp.com
STAFF REPORTER in Shanghai
--------------------------------------------------------------------------------
In a move likely to help open up the country's fledgling domestic markets, China is allowing foreign-funded companies to sell shares to mainland investors.
Yesterday the Shenzhen-based Securities Times reported the Ministry of Foreign Trade and Economic Co-operation (Moftec) said in a recent circular that a "foreign-invested joint-stock limited company" meeting requirements would be allowed to issue A or B shares on domestic exchanges.
Allowing foreign ventures - which are usually better managed and more competitive than their mainland counterparts - into mainland exchanges is expected to force local listed companies to lift their game.
It also ties in with Beijing's push to reform the stock markets ahead of admission to the World Trade Organisation.
Foreign firms thought to be lobbying for a domestic listings include Anglo-Dutch household and personal-care product giant, Unilever (China), Taiwan-based Giant Group, one of the world's biggest bike makers, and Eastman Kodak (China), the world's biggest manufacturer of photographic equipment.
For foreign companies - many of which have intensified expansion of their operational bases in the mainland during the past decade - going public is expected to lead to a higher profile, as well as providing a fund-raising avenue.
The foreign shareholder will have to retain at least a 25 per cent stake.
It is thought companies will prefer the larger domestic A-share markets - traded in yuan with a relatively high price-earnings ratio of about 60 times - over the foreign-currency B-share markets. There are more than 1,000 listings on the A-share markets, 10 times more than the B-share listings.
Analysts were sceptical of the extent to which Moftec's move would help foreign firms.
"It's unlikely that the government will give foreign firms the opportunity soon, when it is itself eyeing the funds," said a Shanghai-based analyst.
Beijing has been treading cautiously in floating state-held shares due to fears the domestic stock markets might not be able to absorb a massive influx of scrip, although the government first pledged its intention a few years ago.
Just two weeks ago several listed state-run companies, for the first time, revealed plans to sell off shares to raise badly needed funds for corporate restructuring and to help fund social security payments.
The sales will pave the way for up to seven billion yuan (about HK$6.56 billion) of state shares to come on stream this year, according to market estimates.
"This is only a Moftec decision," warned the Shanghai analyst.
"There is still the China Securities Regulatory Commission which you have to take into account."
The watchdog determines which company can be listed and which cannot.
The Securities Times report said that Moftec was in the process of drawing up detailed operational rules for foreign ventures going public.
Only when these rules are revealed can a more concrete time-frame be established.
However, according to Baker & McKenzie partner John Grobowski, less than 5 per cent of foreign-invested companies operating on the mainland will, at the moment, be eligible for listing on the local bourses under the new ruling.
"Foreign-invested joint-stock limited company" comprises a company established under China's Company Law as a share-issuing company with foreign investors as sponsors. |
