Customers queue up to fill out application forms to take part in a new rights issue by HSBC bank in Hong Kong yesterday. AFP

HONG KONG: The price of HSBC Holdings' rights issue shares advanced in their first trading day in Hong Kong amid heavy activity. Shares in HSBC also rose tracking an overall hike in the market.

The seven-day trading period for HSBC's rights shares kicked off yesterday and ends March 31. The share price of the rights issued opened at HK$11 and ended 20 percent higher at HK$13.20 after hitting an intraday low of HK$10.80 on trading volume of 210 million shares and HK$2.45 billion changing hands. The total accounted for 4.4 percent of the HK$55.3-billion in total mainboard turnover.

Dickie Wong, research director of Kingston Securities, said HSBC rights shares were following the performance of HSBC shares.

Wong recommended shareholders who don't intend to join the rights issue to sell their rights on the first two trading days.

"There is time limit, the share price of the rights may be lower when it gets closer to the expiry date," he said.

Based on the closing price of the rights yesterday, and added to the HK$28 rights issue price, the intrinsic value of HSBC is HK$41.20 per share, HK$0.5 lower than the closing price of HSBC's shares, which gained 0.6 percent at HK$41.70.

Karl Thomson Securities Chief Portfolio Strategist Patrick Shum said prices are difficult to forecast for rights issues.

"The prices are driven partly by arbitrage activities and speculation," he said, "it would not be surprising if the rights shares rise to HK$16 even if it gets close to the expiry day."

The discrepancy in HSBC share prices and the intrinsic value is likely to encourage arbitrage activities in the coming days, he said.

In a separate development, the 10-minute closing auction session that has been in place for a few months was terminated last Friday and the exchange started using the previous, traditional closing system.

Wild fluctuation in share prices, including a massive drop in HSBC shares earlier this month, led to criticism that the closing auction encouraged manipulation in share prices.

Shum said the rights shares and HSBC shares were not trading in a volatile manner right before the end of the trading session.

"The previous closing system can't entirely avoid share price manipulation as well," he said, adding that fluctuations may have been reduced by recent criticism.

Small shareholders can submit their applications for HSBC's rights issue as of yesterday. Dozens of shareholders waited outside the offices of Computershare Hong Kong Investor Services' in Wan Chai before the official opening of 9 am to submit their applications.

Computershare Hong Kong Investor Services has deployed staff to help shareholders fill out application forms and handle inquiries. It also prepared more application boxes for investors to submit their forms in the afternoon.

(HK Edition 03/24/2009 page16)