During a visit to Hong Kong in August 2011, the Chinese Vice
Premier Li Keqiang unveiled a series of initiatives to further
strengthen Hong Kong's position as an international financial
centre and facilitate the development of offshore RMB business in
Hong Kong. In particular, the new developments on repatriation of
RMB to Mainland China will be greatly beneficial to the Hong Kong
IPO market as they will likely encourage more companies to consider
raising RMB in Hong Kong.
In our e-Alert issued in October last year, we discussed the
efforts of the Hong Kong Stock Exchange ("HKSE") to
develop sustainable markets for RMB products. These include RMB
IPOs and the ability of existing listed issuers to make "RMB
follow-on offerings" to raise funds in RMB via placement and
rights issue/open offer. In this e-Alert, we will go through the
latest details on the different models and infrastructure to
support the listing and trading of RMB securities on the HKSE.
Under the HKSE's current framework, in RMB IPO, the issuer
can choose between three models - STSC (single tranche and single
counter), DTSC (dual tranche and single counter) or DTDC (dual
tranche and dual counter). Under STSC, the subscription currency
for the shares will be in RMB only and upon listing the shares can
only be traded in the RMB counter. Under both DTSC and DTDC, the
issuer will provide investors with currency options to subscribe
for its shares in either RMB or HKD or partly in RMB and partly in
HKD. The only difference between DTSC and DTDC is that under DTSC,
all trading will only be done in RMB in a single RMB counter
whereas DTDC will have dual trading counters for HKD and RMB
trading. Although different counters are used for trading of shares
in HKD or RMB, the underlying shares being traded are of a single
class and will carry the same shareholders' rights. Under the
DTDC model, there will be separate ISIN code and HKSE stock code
for shares trading at HKD and RMB counters. Shareholders can change
the trading counters for their shares by returning their existing
share certificates in exchange for new share certificates. CCASS
participants who hold shares in CCASS can move their shares between
the HKD and RMB counters electronically.
Based on our current discussions with the share registrars, the
Hong Kong branch share registrars will maintain separate branch
registers for shares traded at each of HKD and RMB trading
counters, which is allowed under both Bermuda and Cayman laws.
Notations will be made on share certificates to differentiate
between shares tradeable at the HKD or RMB counters. The principal
share register of the issuer in Bermuda or Cayman will not be
affected by this arrangement given that all shares registered at
such principal share register are not traded on the HKSE in any
case. These arrangements will also apply to existing listed
companies doing RMB follow-on offerings resulting in two trading
A RMB offering has significant benefits to the issuer, including
the abilities to hedge against an appreciating RMB and deploy
capital for Mainland China expansion and can raise the issuer's
profile by attracting strong local and international investor
Given the high level of RMB deposits in Hong Kong (around RMB589
billion by the end of 2011), it is expected that RMB IPOs or RMB
follow-on offerings by existing listed companies will attract
strong demand and receive high level of investors attention both in
Hong Kong and internationally. These offerings will boost the
development of an offshore RMB capital market and RMB financial
products in Hong Kong.
Appleby is the only offshore law firm to cover all of the
offshore jurisdictions approved by the HKSE (Cayman Islands,
Bermuda, BVI, Jersey, Isle of Man and Guernsey). Together with our
wealth of experience in corporate finance, multi-lingual team and
long standing presence in Asia, we are able to offer our clients
outstanding offshore guidance for their listing needs.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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