Lenovo, China Telecom Mull CDR Homecomings
Bottom line: Hong Kong-listed “red chip” stocks like @Lenovo (OTCPK:LNVGY, HKEx: 992) and @China Telecom (CHA, HKEx: 728) could eventually make secondary listings in China under a new #CDR program, but will be forced to wait behind higher-profile Internet names like @Alibaba (NYSE:BABA). With all of the major IPOs for the week now in the history books, as most of the world takes a vacation for Good Friday, I thought I’d close out the week here in China with yet another angle on the China Depositary Receipt (CDR) program that is creating lots of buzz. Regular readers will know this is a reference to China’s planned take on the popular American Depositary Receipt (ADR) program that lets companies with a primary listing in one market make secondary listings in another one. Lots has been written these last couple of weeks about how the CDR program could let U.S.- and Hong Kong-listed tech giants like Alibaba and Tencent (OTCPK:TCEHY, HKEx: 700) make new secondary listings in China, which they couldn’t do before. But today we’re getting the first few peeps about similar homecomings from top executives of a group of Hong Kong-listed companies known as “red chips,” which are major Chinese firms that are currently barred from listing at home. In this case, the companies that have commented on the matter are Hong Kong-listed PC giant Lenovo, and China Telecom, the smallest of China’s three major wireless carriers. None of the comments are too earth-shattering, and the only reason we’re even hearing them is because it’s earnings season in Hong Kong, and thus, top executives from many major firms are getting asked about the subject at their regular earnings press briefings. Still, this group of red chips would also be strong candidates for secondary listings back in China, which could have interesting implications for their Hong Kong- and New York-listed shares, especially if those shares are more highly valued in China as CDRs. These “red chips” and companies like Alibaba are two different kettles of fish in terms of the organizational tricks they use to shed their China roots in legal terms and become eligible for offshore listings. But the common element they share is that both groups are technically domiciled outside China, most often in the Cayman Islands. That makes them eligible for listings in New York, Hong Kong or pretty much any other foreign market. But it also disqualifies them from listing in China, even though in reality they are quite Chinese and most of their operations are in China.