Red-chip companies, or mainland firms incorporated outside the mainland and listed in Hong Kong, are expected to list on the yuan-denominated A-share market by the end of this year, say Hong Kong-based analysts.

 

If the A-share listing of these firms, at least 20 percent of whose stake is held by the State or State-owned entities, materializes, it will help cool down the red-hot Shanghai market by providing more quality shares, they say.

 

"We believe mainland regulators will clear all legal hurdles soon," said Ronald Wan, managing director and head of investment banking at Bank of Communications Securities. "The listing for the first (batch of) red chips will come by the end of the year."

 

Ricky Tam, chairman of Hong Kong Institution of Investors, also said mainland regulators seem eager to attract more quality companies to the A-share market.

 

"The listing of red chips on the mainland will provide alternative investment channels for domestic punters," Tam said. "That will definitely help cool down the frenzy in Shanghai. The central government is eager to ease the excess liquidity in the market."

 

There are about 85 red chips listed on the main board of the Hong Kong bourse with a total market capitalization of about HK$3.1 billion.

 

Red chips have long been excluded from the domestic market because their flotation involves technical complications.

 

China Mobile and PetroChina have the best chance of being in the first batch of red chips listing on the mainland, given their huge capitalization and reputation.

 

"China Mobile and PetroChina are very likely to be in the first batch. Technically speaking, we don't see any hurdles delaying their listing, especially with the State Council giving its nod."

 

Market sources say five red chips have been given the green light to float in the A-share market. These are China Mobile, China Netcom Corp, CNOOC, Lenovo and an unidentified electronic components producer.

 

But Tam cautioned that red chips could divert some capital away from mainland shares. "Giants like China Mobile and PetroChina are most likely to join the stream, but we doubt whether Lenovo is large enough to be on the list," Tam said.

 

Red chips such as China Mobile have so far tried to tap the mainland market through China depository receipts (CDRs). But senior mainland officials now seem more inclined to A-share listing rather than CDRs.

 

(China Daily May 10, 2007)