Investors in a securities brokerage in Guangzhou, Guangdong Province, Southern China, October 19, 2018. [Photo/IC]
Chinese companies listed on foreign stock exchanges may consider floating positions on the upcoming Shanghai Science and Technology Innovation Council, analysts said.
The pilot project on capital market reforms in China is expected to be launched between April and June.
"Companies with special ownership structures meeting the relevant requirements and redchip companies will both be allowed to register …", said the China Securities Regulatory Commission, the main securities regulator, in a announcement published on January 30th.
"Red" companies refer to mainland companies that are incorporated and listed outside the mainland, including the Hong Kong Stock Exchange and the New York, London and Frankfurt Stock Exchanges.
According to analysts, the "special ownership structures" mentioned in the January 30 announcement refer to the structures of variable interest entities or VIEs, which are adopted by some redchip companies, including Internet companies such as 39, Alibaba and Tencent.
LIFE structures allow foreign investors to invest in companies established on the continent and control them through contracts rather than ownership. China does not allow foreign capital to take control of companies in certain sectors through direct holding of shares.
"The acceptance by the new board of directors of the VIE structures and redelicating companies will facilitate their listing on the continental stock exchanges," said Wang Tingting, associate professor of finance at the Central University of Finance and Economics, based in Beijing.
"Without this acceptance, they must make changes to their corporate governance structures, such as the removal of the LIFE structure, in order to become public on the continental stock exchanges.These adjustments are usually expensive," said Wang.
Luo Wei, an associate professor at Guanghua University of Peking University, said that many overseas-based and internationally-listed Internet companies wanted to be indexed at home, where they could even receive a higher value as investors seem to understand and better recognize their business models.
Once the new board of directors sees the listed redchip companies, the continent's investors will be able to better diversify their portfolios, but they will have to spend more time understanding the risks inherent in the complex structures of LIFE, Luo said.
According to the CSRC, Redchip companies do not need to pull out of the list of stock exchanges located outside the continent to appear on the new chart. Blue-chip companies are allowed to register on the new board by issuing Chinese certificates of deposit or CDRs, he added.
CDRs are certificates traded on continental stock exchanges, but represent a pool of shares listed on stock exchanges outside the continent. They are a convenient and inexpensive way for blue chip companies to quote at home.