Upfront
OPINION INTERNATIONAL FINANCING REVIEW ASIAEastbound express
L
ondon-Shanghai Stock Connect is tailor-made for HSBC.
China’s latest global equity trading link aims
to encourage UK and Chinese companies to list
depositary receipts in each other’s markets. Assuming
ITûOPENSûLATERûTHISûYEAR ûASûSCHEDULED ûTHEûlRSTûOVERSEASû
company to list in China could be an old British bank, not a
Chinese new-economy champion.
Smartphone maker Xiaomi walked away from plans to
SELLûTHEûlRSTû#HINESEûDEPOSITARYûRECEIPTSûINû*ULY ûANDûTHEREû
ISûNOûSIGNûTHATûANYûOTHERûOVERSEAS
INCORPORATEDû#HINESEû
technology giant is preparing to launch a CDR issue any
time soon.
Enter London-Shanghai Connect. The draft rules are still
LIGHTûONûDETAIL ûBUTûPREVIOUSûSCHEMESûSUGGESTûREGULATORSû
will allow cross-border trading in the biggest stocks in their
RESPECTIVEûMARKETS ûATûLEASTûINûTHEûINITIALûPHASE
It doesn’t take much imagination to name the most likelyEastbound candidate: the second-biggest company in the
FTSE100 index has been keen on a Shanghai listing since at
least 2001.
HSBC, which opened in Hong Kong and Shanghai in 1865,
WASûAûVOCALûSUPPORTERûOFû3HANGHAISûEFFORTSûTOûINTRODUCEû
ANûINTERNATIONALûBOARDûALMOSTûûYEARSûAGO ûEVENûHIRINGû
Chinese underwriters at one point in 2009. The project
STALLED ûHOWEVER ûANDû#HINASûREGULATORSûEVENTUALLYûSHIFTEDû
their focus elsewhere.
The London Connect blueprint could allow the Hong
+ONGûANDû3HANGHAIû"ANKINGû#ORPûTOûREVIVEûTHOSEûAMBITIONS û
but it comes with some drawbacks. Notably, London-listed
companies would only be allowed to sell CDRs backed by
EXISTINGûSHARES ûSOûANYûMOVEûWOULDûBEûPURELYûAûBRANDINGû
opportunity, rather than a capital raising exercise. It’s
also not yet clear whether the CDRs would need to be
denominated in renminbi, or how a CDR under London-
Shanghai Connect would be compatible with China’s earlier
RULESûLIMITINGû#$2ûSALESûTOûCHERRY
PICKED ûhINNOVATIVEvû
companies.
4HEûFRAMEWORKûALSOûENVISAGESû#HINESEûCOMPANIESûmOATINGû
'$2SûINû,ONDONûTOûTAPûINTOûAûGLOBALûINVESTORûBASE ûBUTûTHATûWestbound logic is harder to justify. The London Stock
Exchange is already an open market, but only four Chinese
issuers trade there. The last to list was Air China in 2004.
$ETAILSûWILLûBEûIMPORTANT ûOFûCOURSEû'IVENûTHEûSTRATEGICû
VALUEûTHATû(3"#ûPLACESûONû#HINA ûHOWEVER ûANYûTRADINGûLINKû
between London and Shanghai already looks like a winner.Delayed InvIT-ation
I
NDIASûmEDGLINGûMARKETûFORû2%)4SûANDûINFRASTRUCTUREû
INVESTMENTûTRUSTSû)NV)4S ûISûATTRACTINGûRENEWEDûINTERESTû
AMONGûSPONSORSû%VENûIFûPLANNEDûBIGûDEALSûGOûAHEAD û
HOWEVER ûTHEûFORMATûISûAûLONGûWAYûFROMûWHEREûITûNEEDSûTOû
be.
%MBASSYSûOFlCEûTRUSTûLOOKSûTOûBEûlNALLYûHEADINGûTOû
MARKET ûTHREEûYEARSûAFTERûITûWASûlRSTûPLANNEDû#ANADASû
"ROOKlELDûISûEVENûPLANNINGûAûGIANTûINFRASTRUCTUREûTRUSTû
to acquire a gas pipeline from the promoter of Reliance
Industries.
With the Sensex equity index testing record highs and
TRUSTSûNOWûABLEûTOûlXûINTERESTûCOSTSûTHROUGHûBONDûISSUES ûITû
is easy to see the appeal of monetising assets in this way.
But this is also a terrible time to be selling an income stock.
)NDIASû
YEARûGOVERNMENTûBONDûBENCHMARKûISûUPûBPû
THISûYEARûATûOVERû ûHURTLINGûTOWARDSûhTAPERûTANTRUMvû
TERRITORYûOFûû7HILEûTHEûDIVIDENDûYIELDûTHATûTHEûTRUSTSû
will offer is not yet clear, there is a good chance that
INCOME
SEEKINGûBUYERSûCANûlNDûHIGHERûRETURNSûANDûLOWERû
risks elsewhere.
5NFORTUNATELY ûTHEû2%)4ûANDû)NV)4ûEXPERIMENTûHASûSOûFARû
been another example of India’s capital markets falling
SHORTûOFûTHEIRûPOTENTIALû2EGULATORSûNEEDûTOûlNDûAûQUICKERû
WAYûTOûOVERCOMEûINGRAINEDûSCEPTICISMûTOWARDSûNEWû
PRODUCTS ûORû)NDIANûISSUERSûWILLûAGAINûlNDûTHEYûHAVEûMISSEDû
the boat.
2%)4SûHAVEûBEENûALLOWEDûSINCEû ûBUTûAûLACKûOFû
coordination between regulators, particularly around
taxation, has stopped deals from coming to market. The
TWOûINFRASTRUCTUREû)NV)4SûTHATûHAVEûMANAGEDûTOûLIST ûFROMû
ROADûBUILDERû)2"ûANDûPOWERûDISTRIBUTORû)NDIAû'RID ûHAVEûNOTû
performed well.
!FTERûREPEATEDûTINKERING ûREGULATORSûSEEMûTOûHAVEû
produced a format that works for an asset owner, and a
SUCCESSFULûDEBUTûFORû%MBASSYSû2%)4ûANDû"ROOKlELDSû)NV)4û
WOULDûGOûAûLONGûWAYûTOûBUILDINGûCONlDENCEûINûTHEûIDEA
The trust product still has enormous potential in India,
ESPECIALLYûASûANûALTERNATIVEûTOûBANKûlNANCINGûINûTHEûCAPITAL
constrained infrastructure sector. The format ought to suit
THEûREQUIREMENTSûOFûBOTHûLONG
TERMûINSTITUTIONALûINVESTORSû
ANDûINFRASTRUCTUREûDEVELOPERS ûBUTûHOPESûOFûANûOVERNIGHTû
SUCCESSûLOOKûSADLYûOVERDONEThe London-Shanghai Connect
blueprint could allow HSBC
TOûREVIVEûITSûAMBITIONSûOFûAû
China listing.