A woman walks past a RMB poster in Hong Kong. In a move to help expand the offshore yuan equity market, the local bourse announced that local-listed companies will be able to raise funds through a yuan follow-on offering. Laurent Fievet / AFP

Hong Kong Exchanges & Clearing Ltd, the local bourse operator, said on Monday that it will allow local-listed firms to raise funds by issuing yuan-denominated shares.

In a move to help expand the offshore yuan equity market, the local bourse announced that companies already listed on the Hong Kong Stock Exchange (HKEx) will now be able to raise funds through a yuan follow-on offering by launching a new counter of yuan-traded shares alongside the existing Hong Kong dollar counter.

"A listed issuer can choose to raise funds in RMB via placement, open offer, public offer or a combination of the above," said Bryan Chan, head of the local bourse's RMB product task force.

The newly issued yuan shares will be traded in the yuan counter, while the existing Hong Kong dollar-traded shares will continue to be traded in the existing counter.

Existing disclosure requirements will continue to apply, according to Chan, but additional disclosures will have to be made on the establishment of dual trading counters and related arrangements including dividend payments and currency options.

Chan said that HKEx remains flexible on the transferability between the two tranches of shares post-listing, but it does favor allowing transferability, which could help ensure efficient arbitrage and keep the prices of the two counters within a reasonable gap.

Allowing transferability between Hong Kong-traded shares and yuan-traded shares carries risks as it may lead to inadequate yuan counter liquidity, Chan said. But "we would rather market forces decide the movement of shares", Chan noted, adding that he expects investors' confidence in yuan-related trading to grow in tandem with the development of the offshore yuan market.

Issuers seeking a yuan follow-on offering have no minimum market capitalization requirement to meet, but the offer size is expected to be meaningful enough to support secondary market yuan liquidity, according to Chan. He doesn't rule out the possibility that a minimum market capitalization requirement could be set some day as the situation requires.

While convinced by companies' outlook, buyers of the yuan-traded shares, said Mathew Kwok, China division vice-president at Taifook Securities Ltd, supposedly are also encouraged by the expectation that the mainland currency would continue appreciating.

"Investors tend to bet on renminbi appreciation, which usually leads to a high valuation for issuers of yuan-denominated shares," said Kwok, "That helps to boost companies' fundraising."

emmaan@chinadailyhk.com

China Daily

(HK Edition 09/06/2011 page2)