B-share company trying to move to HK bourse

A mainland transport company has applied to become the first enterprise to migrate to the Hong Kong bourse, as mainland regulators encourage companies to delist from the ailing B-share board.

The foreign currency denominated B-share market lost its relevance years ago as a sole gateway for overseas investors due to reforms implemented by China to allow firms to list overseas, and the market has become increasingly illiquid and vulnerable to speculation.

The Chinese port investor and operator China Merchants Holdings (International) Co Ltd said on Wednesday that its Shenzhen-listed China International Marine Containers (Group) Co Ltd plans to change the listing venue of its B shares to Hong Kong by way of introduction without raising fresh capital.

In a filing to the Hong Kong bourse, China Merchants said CIMC plans to convert all 1.43 billion of its B shares into H shares. The company, which makes containers, trailers, tank equipment and port facilities, will retain its A-share listing.

CIMC's B shares resumed trading on Wednesday after a halt that began on July 13, while its A shares have traded uninterrupted.

The migration to the Hong Kong bourse, if approved, will set an example for other B-share tickers on the Shenzhen exchange that are under regulatory pressure to upgrade their ticker performance or exit the board.

Turning B shares into H shares - the term for shares of mainland companies listed in Hong Kong - through introduction will be relatively easy because Shenzhen B shares are already denominated in Hong Kong dollars. The B shares of companies listed in Shanghai are denominated in US dollars.

However, the fact that mainland passport holders are allowed to own B shares, yet are not allowed to directly trade Hong Kong equities, complicates matters.

Zhang Yanbing, an analyst at Zheshang Securities in Shanghai, said investors who can hold onto their shares should benefit from higher valuations once the B turns into an H, because B shares have traditionally traded at significant discounts to A and H shares issued by the same company.

In addition to legal and regulatory barriers, there are also question marks over investors' attitudes toward such moves, he said.

For example, in a statement published on the Shenzhen Stock Exchange website, CIMC said that it would offer shareholders the option to cash out their existing B shares at the company's closing share price before it halted trading on July 13, plus a 5 percent premium, equaling HK$9.83 ($1.27) per share.

Such a premium is unlikely to be welcomed by shareholders given that CIMC's A shares are currently priced at 11.96 yuan ($1.88) per share.

In addition, if regulators do not permit mainland holders of B shares to hold H shares, it raises the question of whether they could be forced to accept a cash-out.

"This is a bad start," said Zhang Qi, senior analyst at Haitong Securities. He said that under the current system, mainland shareholders might be permitted only to hold and then sell their B shares, a sort of one-way ticket.

"Letting (mainland investors) buy Hong Kong shares is impossible, nobody will take the responsibility, but forcing people to take cash is irrational."

The B-share index was down slightly on Wednesday.

In 2012, the China Securities Regulatory Commission began accelerating the delisting process for low-grade B shares by establishing a "par value" standard for share prices and minimum trading volumes.

The new policies put multiple B-share tickers on the Shenzhen exchange at risk of imminent delisting. Many have suspended trading in their shares, effectively stopping the clock that measures their share price performance.