Friday, June 08, 2007


Ball Is Rolling - H-Shares

As mentioned in my previous posting, one of the driving factors why I view the recently listed China covered warrants favourably is the likelihood of them being brought back to mainland for listing. The mainland regulator has just opened the door for more Hong Kong- traded red chips to list on the domestic bourses. The net income requirement has been lowered to HK$2 billion over three years, from HK$1 billion annual profit. According to a draft document obtained by the Beijing-based Caijing magazine, new rules for red-chip listings have been finalized. The new requirements could make 22 red chips eligible to list in the mainland.

The major difference between the new draft rules and those that the state is that the net profit requirement has been relaxed. The criterion which prohibited companies whose parent is listed on the domestic market from selling shares has been removed by the China Securities Regulatory Commission.

These changes will make 22 Hong Kong- listed red chips eligible to apply for a domestic share issuance. In addition to blue chips China Mobile (0941), China National Offshore Oil Corporation, or CNOOC (0883) and BOC Hong Kong (2388) - seen as frontrunners for listing - other enterprises such as Shanghai Industrial (0363) and Lenovo (0992) will now be eligible. China Overseas Land (0688), which also becomes eligible, abandoned plans for a domestic float last month since the parent company is listed in Shanghai and would not meet prevailing criteria. Among other requirements, companies aiming to return to the domestic market are required to have been listed in Hong Kong for at least a year, with market capitalization of HK$20 billion or more. Half of their business and net profit should be generated from the mainland.

The CSRC has been encouraging big-cap red chips to return to the domestic market, as it seeks to improve the quality of the bourses. Initially, the CSRC aims to attract only large corporations and may not encourage small enterprises. Once things have been planned by Beijing, the rest just falls into place, the companies will have to toe the line. The CSRC sees this as a major step to improve choices for mainland investors - one of the main reason why Shanghai and Shenzen bourses are so frothy: the lack of good companies. The H-shares are regarded as a few rungs better run than those in the mainland, and would be given a better pricing when they go back.

I would expect the shares to move up gradually as this process gathers speed. This gives the China Mobile and PetroChina covered warrants another kicker.

4 comments:

keehoo said...

Can this happen within the next 8 months? This CW will expire in 9 months time..

simon_alibaba said...

Bingo!, the shanghai index of around 4000 is just like the mirror of nikkei index 4000 in 1980. ASK Dali, it went from 4000 to 10000 in 5 years. then from 10000 in 1985 it went to 40000!! in 1990. how can shanghai be frothy when it only move from 1500 to 4000!?
as u have just said the great time is rolling .miss this "frothy" rally u will regret for life!

Salvatore_Dali said...

yes, i think it will happen before the year is over... theauthorities is trying very hard to let steam out of their mkts but dontwant it to collapse... more choices is good, and the 22 on H-shares are pretty big caps.

as for follwoing nikkei, it could reach 10,000 in 3 years if earnings growth stays above 25% a year and they play their cards right... i think china has a long way to go and he yuan can appreciate 40% from here and china will still be able to move up the value chain, there will be hiccups but its inevitable, can anyone see china stagnating or even see gdp growing by less than 6%p.a. for the next few years? Its more likely to be 8%-12%pa.

rask3 said...

Hi,

I'm not sure if I should comment on this, but I'll give it a shot from a FA perspective.


Who'd have thought in 1994, that the CI would take 13 long years
(some of them very painful) to
reach the high achieved early in that year? There were people, supposedly on top of things, like S.N. Lock, who made bold predictions, like the CI would reach 2000 before the year 1994 is out. I remember the then head of Malaysian Investors Association, saying in 1996(?), that the second board index would reach 1000. It was around 600 when he said that.
We all know what happened soon after that.


All this reminds of Warren Buffet pithy words: The track record of people who try to predict the stock market, make fortune tellers look good.


As for me, anyone who could tell what the future holds, would soon own half the world. I do take risks with my money in the stock market, but so far I've found no substitute for shrewdness. To me it is a business.And you know it is not easy to make money in business, unless you have something like a concession.



Rask