China is drafting laws to allow foreign companies like Unilever NV and Bank of East Asia to sell local shares, marking its biggest step toward fully opening its US$650 billion capital markets.
The new rules would let companies sell either local or foreign currency-denominated shares, said Ma Dezhi, a spokesman for the Ministry of Foreign Trade and Economic Cooperation. They must seek ministry approval, he said in an interview.
For China, foreign listings on its two domestic stock exchanges would boost its image as it prepares to enter the WTO. It would also be a sign that China is serious about reforming its securities markets to bring them more in line with international standards.
"This is a good development in terms of opening Chinese financial markets," said James Cheng, who helps manage US$60 million at Asia Strategic Investment Management Ltd. Since China isn't likely to allow proceeds to be taken out of the country, "I expect the beneficiaries to include multinational companies that have China operations, such as Kodak China," he said.
Companies that have expressed an interest in selling shares in China include HSBC Holdings Plc, Procter & Gamble Co, Royal Philips Electronics NV, and Taiwan's Giant Manufacturing Co (捷安特) and Microtek International Inc (全友公司).
A China listing would help Unilever, which has been doing business there for three-quarters of a century, increase name recognition in the world's most populous nation, where its products include Lux soap, Lipton tea and Hazeline shampoo. Unilever said as long ago as October 1999 that it wants to sell shares in China as soon as possible.
"We would like to sell yuan-denominated shares in Shanghai," said Paul Neely, Unilver's Shanghai-based director of corporate development. "We are looking to list in two to three years, but the exact timing would depend on what the regulations are and how the market is doing." Unilever has already hired an advisor to help arrange the share sale, Neely said, declining to identify it.
Bank of East Asia, which has already begun studying a local listing plan, expects other banks to follow because Chinese shares trade at a higher price-earnings ratio. "We will submit the application to sell shares in China if the bank is eligible for the forthcoming rules," said Chan Kay Cheung, deputy chief executive at Hong Kong's fourth-biggest bank by market value.
Yuan-denominated shares trade at an average of 60 times earnings, seven times the average price-earnings ratio of stocks on the Hang Seng China Enterprise Index in Hong Kong. That helps explain why companies such as China Petroleum & Chemical Corp, known as Sinopec, can expect to sell shares for more than double its Hong Kong stock price.
Giant, Taiwan's biggest bicycle maker, also plans to sell US dollar-denominated B shares.
"We have plans to list in the Shanghai B share market," said Liu Yong-chang, Giant's vice president for sales and marketing.
"We have always wanted to do that but the decision was only approved by the board of directors in December. We are now in the midst of getting the paperwork done."
Proceeds from the sale, the size of which hasn't yet been determined, would help pay for acquisitions in the US, Liu said.
Giant has a manufacturing plant in Kunshan, in the Chinese province of Jiangsu.
Microtek, a computer scanner maker named by Forbes magazine in 1999 as one of the world's best publicly traded small companies, is seeking to raise about US$54 million in a Shanghai B share sale, said Wang Jin-chen, assistant general manager of Shanghai Microtek Technology Co. The Taiwan company hired Shanghai-based Shenyin & Wanguo Securities to prepare for the sale, and plans to file listing plans next January, Wang said.
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