China has enormous foreign currency reserves -- $1.46 trillion, according to October 2007 data -- an amount increasing quickly on the back of a huge trade surplus. Much of China's capital is locked in its domestic markets, but that is changing.
Thus, according to Howard Chao, the partner in charge of O'Melveny & Myers LLP's Asia practice, and Jing Ulrich, managing director and chairman of China Equities for J.P. Morgan Securities (Asia Pacific) Ltd., this is a great time for opportunistic offshore companies to tap into China's capital.
Chao and Ulrich, frequent contributors to The Deal, elaborated in a recent piece posted to TheDeal.com. According to the authors:
The China Securities Regulatory
Commission, or CSRC, plans to permit secondary listings of offshore
companies in China and has circulated draft rules on this subject for
comment. It appears they will start with Chinese "red-chip" companies --
offshore holding companies listed in Hong Kong that own large Chinese
operating subsidiaries, such as China Mobile Ltd. or Lenovo Group Ltd.
This of course makes sense, since these are really Chinese companies,
but because they were listed offshore, domestic investors previously
could not buy their shares. While they command high P/E multiples in
Hong Kong, expect to see even higher multiples when they list in
Shanghai.
Chao and Ulrich do not expect listings to stop with the red chips:
Major multinationals including HSBC Holdings plc, OAO Gazprom, Coca-Cola Co. and Siemens AG
have announced that they, too, wish to list in Shanghai. Why not? If
they can raise capital at low cost, significantly enhance their
profiles in China, issue locally traded securities with which they can
award employees and at the same time provide high-quality investment
opportunities for Chinese investors, isn't that a win-win situation?
Read the entire column from the Jan. 4 issue of The Daily Deal
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