March 5, 2018 / 10:50 AM / 7 months ago

China plans new share issue option to bring tech giants home

HONG KONG (Reuters) - China may allow its offshore-listed tech giants to sell a form of shares on the mainland, people with knowledge of the plan said, in a move that would pit Shanghai and Shenzhen against Hong Kong in the battle to host the country’s tech giants.

While China is home to some of the world’s biggest tech companies, most are listed offshore, including Alibaba Group Holding Ltd, Baidu Inc, JD.com Inc, and Tencent Holdings Ltd.

Plans being considered by China’s securities regulator could give Chinese investors access to those and other companies via depositary receipts, the people said.

Depositary receipts - common in the United States among other countries - are not technically shares, but certificates that allow investors to hold shares listed elsewhere.

The planned move forms part of efforts by Beijing to counter the threat of a large number of its local technology companies opting for New York or Hong Kong listings instead of their home market, one of the people said.

Hong Kong, home to Tencent’s listing, is currently working on rules that would allow the likes of U.S.-listed Alibaba to take up a secondary listing in the city in an effort to draw interest in such headline-grabbing stocks, and the trading commissions and fees they generate, closer to home.

The guidelines for China depositary receipts (CDRs), similar to American depositary receipts, is likely to be finalised in the second half of this year by China’s securities regulator, said the two people.

The China Securities Regulatory Commission (CSRC) will start accepting CDR applications from interested firms toward the end of the year, they said, declining to be identified due to the sensitivity of the matter.

The CSRC plans to first encourage the overseas-listed, domestic technology companies to issue CDRs to local investors, with an aim to woo global technology giants later, one of the people told Reuters.

The plan comes at a time when Chinese smartphone maker Xiaomi, which is working on an international primary listing that could value it at about $100 billion, is also exploring the possibility of selling shares in its home market.

China’s tech giants have to date preferred to list overseas for reasons including the prestige of an international listing, Beijing’s strict rules on a profitable track record as well as the lengthy time taken to win IPO approval.

The CSRC could not be immediately reached for comment outside of business hours. Financial magazine Caixin first reported the planned CDR move on Monday.

Baidu and Xiaomi declined to comment, while Alibaba, JD.com, and Tencent did not immediately respond to requests for comment.

“We’re seeing a shift in regulators’ attitude toward tech stocks, and that could lead to change in the investment landscape,” said Wu Kan, head of equity trading at Shanshan Finance.

The Shanghai Stock Exchange said on Friday it would support growth of a new generation of companies, while local media citied the Shenzhen bourse as saying over the weekend it was creating conditions for so-called unicorn companies - startup companies valued at more than $1 billion - to list.

Reporting by Sumeet Chatterjee, Shu Zhang, Yiming Shen, Julie Zhu and Kane Wu; Editing by Shri Navaratnam, Jennifer Hughes and Mark Potter

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