Hong Kong presses for RMB-denominated IPOs

By Robert Cookson in Hong Kong

Published: October 5 2010 19:35 Last updated: October 5 2010 19:36

The Hong Kong stock exchange is pushing to allow companies to launch initial public offerings denominated in the Chinese currency by next year, opening a fresh channel for international investors to buy renminbi assets.

The move, if approved, could also eventually become an important fundraising route for companies with operations on the Chinese mainland.

HKEx is one of dozens of financial groups that has been rushing to create renminbi-denominated products in Hong Kong since July, when China eased restrictions on the use of the currency in the territory.

Banks and other financial institutions in Hong Kong have rolled out insurance policies, certificates of deposit and hedging tools denominated in renminbi – the first such products available to foreign investors.

Mr Li said the introduction of renminbi-denominated products on the Hong Kong stock exchange would help China boost international use of its currency and cut reliance on the dollar, adding that it was “a very small step in a very long march”.

Since becoming the first mainland-born head of the Hong Kong bourse in January, Mr Li, a former investment banker, has been lobbying Beijing to relax China’s strict controls on cross-border flows of the renminbi.

Further liberalisation was needed before companies would have enough reason to issue renminbi-denominated shares in Hong Kong, he said.

“The key to making this work is to allow the money to flow back,” Mr Li said.

Although China has this year removed almost all restrictions on the use of its currency for cross-border trade, the repatriation 遣送回國; 調回本國 of renminbi for investment purposes almost always requires the approval of mainland regulators.

HKEx would like Beijing to introduce a fast-track route back to the mainland for companies that have raised renminbi from IPOs in Hong Kong.

McDonald’s, the US burger chain, in August became the first foreign multinational to issue renminbi-denominated bonds in Hong Kong. But the company had to wait about a month before it could move the proceeds on to the Chinese mainland.