HSBC plans to become the first international company to list on the Shanghai stock exchange by launching a £5 billion (US$8.08) share offer to Chinese investors in a move that is rich in symbolism.
The listing underlines the importance of China to HSBC’s growth as well as demonstrating how the center of financial gravity is moving east. It has appointed two Chinese banks — China Citic (中國國際信託投資) and China International Capital Corporation (中國國際金融) — to advise it on the flotation and is set to add Goldman Sachs as the float date approaches, possibly as early as March.
The bank is already well capitalized and does not need the money from flotation, but HSBC is keen to raise its profile with Chinese retail investors as it expands its branch network and looks at buying stakes in rival Chinese banks.
HSBC confirmed that it was planning to list in Shanghai, but declined to discuss details and timing. Mike Trippitt, an analyst at Oriel Securities, said: “It will be easier for HSBC to grow its operations in China if people there have a financial stake in the brand. This is all about HSBC raising its profile in a market that is crucial to its success.”
HSBC recently signaled its determination to expand in China and across Asia by moving Michael Geoghegan, its chief executive, from London to be based full-time in Hong Kong, where HSBC is already quoted.
The bank was founded in Hong Kong and Shanghai in 1865, but shifted its headquarters to London in 1993 after acquiring the Midland Bank.
Hong Kong and China accounted for 40 percent of HSBC’s pretax profits last year and analysts predict this could reach 50 percent over the next decade.
A disastrous foray into the US sub-prime market, where it has been forced to write off billions because of the credit crunch, has persuaded management to return to its roots in the Far East, say analysts.
Beijing has let it be known that it is ready to start allowing foreign companies to list on the Chinese mainland, reflecting its ambitions to open up the country’s financial sector and transform Shanghai into an international financial hub to rival London and New York.
Lawyers in London say that the China Securities Regulatory Commission is expected to change its laws next month to allow foreign and non-mainland companies to list in Shanghai. But the Chinese will retain a cap of 20 percent on the proportion of equity foreign banks can acquire in Chinese financial companies.
Simon Maughan, an analyst at MF Global, said: “You can’t overestimate the importance of China. If the Chinese were to move towards more open capital markets, perhaps allowing foreign institutions to invest in Chinese government debt, HSBC would be better positioned than any other western bank because it already has such a big presence in Hong Kong. A listing in Shanghai would reinforce its position in the region.”
HSBC is already the biggest foreign bank in a country where the market potential is viewed as vast.
“Currying favour with the Chinese is both sensible and necessary if you are serious about growing in a nation with 1.3 billion people,” Maughan said.
The British bank is poised to buy some of the Asian retail and commercial assets being divested by Royal Bank of Scotland. The two sides have struck a deal for the assets in China, India and Malaysia, but the transaction is subject to regulatory approval in the three countries.