IPO Models Provide Options for
Issuers of RMB Shares
HKEx has presented two
possible models for initial
public offerings (IPOs) of
shares in renminbi (RMB):
a Single Tranche Single
Counter model and a Dual
Counter Dual Tranche
model. In addition,
prospective issuers
may also consider dual
currency (RMB and Hong
Kong dollar (HKD)) for
Hong Kong public offer
subscription by retail
investors.
The Single Tranche Single Counter model is the traditional IPO model where
the IPO will result in shares traded in a single counter in the secondary
market. The Hui Xian REIT IPO is an example of the Single Tranche Single
Counter model.
The Dual Tranche Dual Counter model comprises the separate but
simultaneous offer and subsequent listing of shares in RMB and HKD by
the same issuer. The offer prices of the RMB and HKD shares should be
the same, subject to prevailing exchange rate. The shares are convertible –
RMB shares to HKD shares and vice versa – and they are the same class of
shares with identical shareholders’ rights, but they have separate stock codes
and trade separately. Their trades are also cleared and settled separately in
CCASS, the Central Clearing and Settlement System for HKEx’s securities
market.
A RMB IPO, be it a Single Tranche IPO or the RMB tranche of a Dual Tranche
IPO, may accept HKD as an additional currency for the purpose of subscription
under the Hong Kong public offer. This dual currency subscription option,
which is likely to be welcomed by retail investors without sufficient RMB,
helps reduce stress on the offshore RMB money market, particularly if the
IPO is hugely over-subscribed, and enables margin financing in HKD for a
RMB IPO on top of RMB margin financing.
HKEx does not expect any undue delay in the listing review process for
share offers under the Single Tranche Single Counter or Dual Tranche Dual
Counter models because all IPOs are subject to the same process. However,
since this is an early stage in the development of RMB products at HKEx,
there may be additional arrangements and disclosure requirements for RMB
IPOs. To help prevent unnecessary delays, HKEx will work closely with all
prospective issuers interested in a RMB IPO and allocate sufficient resources
to the review process.
If an issuer raises funds through a RMB IPO in Hong Kong, it must obtain
all necessary approvals from the relevant Mainland authorities if it wants to
use the funds on the Mainland.
2
Exchange • July 2011
IPO Models Provide Options for Issuers of RMB Shares
Summary of RMB IPO Options
RMB Equity Seminar and Briefing
HKEx hosted a seminar for market participants and a
briefing for reporters on 22 June to explain its RMB
strategy, the potential benefit of listing shares in RMB,
models for IPOs of shares in RMB and its planned
Trading Support Facility for shares in RMB.
HKEx Chief Executive Charles Li and senior executives
Romnesh Lamba, Bryan Chan and Eric Landheer
spoke at the seminar and answered participants’
questions with senior executives Roger Lee, Calvin Tai
and Grace Kan. The media briefing included remarks
by Mr Li, a presentation by Mr Chan and Mr Landheer
and a question-and-answer session. About 120 people
involved in Hong Kong IPOs attended the seminar and
there were about 85 reporters and photographers at
the briefing.
The presentation from the media briefing is available
from the HKEx website.
3
Exchange • July 2011
HKEx Chief Executive Charles Li speaks to market participants
during HKEx’s seminar on RMB IPOs.
IPO Models Provide Options for Issuers of RMB Shares
TSF Update
HKEx plans to introduce its Trading Support Facility, or TSF, for shares in RMB in September or October of this
year so that the liquidity of RMB shares listed in Hong Kong will not be completely dependent on the availability
of RMB. It will be open to all brokers and custodians.
The TSF is designed to be a back-up and will be used to support secondary trading only. It will not be available
to IPO subscribers.
The principles behind the TSF include: funding is confined to offshore RMB; it is based on the existing RMB
policy framework in Hong Kong; it should not be open to abuse or put stress on Hong Kong’s RMB market;
and it is a facility, not a business.
The TSF will be commercially priced and investors who use it to purchase RMB shares with HKD will receive
HKD when they sell the shares so it will not be a means for currency speculation.
Trading Support Facility – Key Design Principles
Hong Kong’s First RMB IPO
Hong Kong had its first RMB IPO in April, when the Hui Xian Real Estate
Investment Trust (REIT) raised about RMB10.5 billion through its IPO.
Hui Xian’s IPO was Hong Kong’s third largest by a REIT based on
funds raised.
Hui Xian was listed on the Stock Exchange on 29 April. It became the
Exchange’s third Mainland-focused REIT and the ninth REIT listed in
Hong Kong.
Hong Kong’s first RMB IPO was a major milestone in the city’s
development as an offshore RMB centre. It also moved HKEx closer
to its goal of becoming the international exchange of choice for China
clients to achieve their global aspirations and the China exchange of
choice for international clients to achieve their China aspirations.
4
Exchange • July 2011
HKEx Chairman Ronald Arculli (front row, sixth from
right) and SFC Chairman Eddy Fong (front row, fifth
from left) congratulate Hui Xian REIT Chairman Kam
Hing Lam (front row, sixth from left) at Hui Xian’s
listing ceremony.