Ask The Expert July 2013
Q: When do you expect to see an RMB IPO in Hong Kong?
A: There are two types of RMB IPO:
1. Dual tranche dual counter (DTDC)
- An issuer offers both RMB-traded shares and HKD- traded shares during the IPO, investors paying in RMB are allotted RMB-traded shares, investors paying in HKD are allotted HKD-traded shares.
- There are two stock codes and branch registers upon listing.
- Post-IPO, investors can convert their shares between the two counters.
2. Dual tranche Single Counter (DTSC)
- An issuer offers only RMB-traded shares during the IPO; investors can pay in either RMB or HKD, but only RMB-traded shares will be allotted.
- There will be only one stock code and one register upon listing.
The DTDC model is designed for sizable IPOs, as liquidity is a key issue if the issued shares are divided into two counters. One benefit of the DTDC model is to enhance liquidity when traders are attracted by arbitrage opportunities arising from dual counter trading activities. The free convertibility between two counters on the same exchange can help with market efficiency which can bring share prices to an equilibrium.
This year, sizable IPOs on the Hong Kong listing market have been mostly H-share offerings which cannot raise RMB under the current PRC rules and regulations, so we have not seen an IPO candidate that can fit into a DTDC model RMB IPO yet.
PRC companies’ incomes and expenditures are mostly in RMB, so most PRC companies looking for a Hong Kong listing are interested in an RMB IPO. If these companies are not H-share companies, they can consider doing DTSC if their offers are not sizable enough for a DTDC model.
The following diagram illustrates the similarities and differences between the two RMB IPO models.
Lina Wynn, Head of Client Services
Computershare Hong Kong Investor Services Ltd