By Shen Hong
SHANGHAI--Chinese brokerage Huatai Securities Co. plans to raise as much as $2 billion selling London-listed share-backed instruments this week, reviving a delayed financial link between China and the U.K.
The Shanghai-London Stock Connect aims to make Chinese shares available to British investors, and vice versa. A planned launch in December was postponed because of Brexit uncertainty and other problems, people familiar with the matter said at the time.
For China, the tie-up, which was four years in the making, demonstrates a commitment to opening up its markets and economy despite trade tensions with the U.S. For the U.K., it could help boost business with China and bolster London's financial-center credentials as Brexit looms.
However, analysts and investors have said the program's appeal is likely to be limited. Many larger foreign institutions can already buy or sell mainland-listed Chinese stocks via trading accounts in Hong Kong. No other Chinese companies have expressed interest in the program, and HSBC Holdings PLC is the only British blue chip to confirm it is studying the system. Another hurdle is a lack of familiarity with British companies among Chinese investors.
Huatai Securities, China's fifth-largest securities firm by assets, said late Tuesday that U.K. regulators had cleared it to issue up to 82.515 million global depositary receipts, a type of share-backed security, on the London Stock Exchange.
The Nanjing-based company said it is offering the GDRs at between $20 and $24.50 until Friday. The GDRs, each representing 10 Shanghai-listed A-shares, will be equivalent to 10% of its share capital. Assuming the maximum number of shares are sold, and an "overallotment option" to increase the deal size by 10% is exercised, the firm could raise between $1.65 billion and $2.02 billion.
Beijing is moving ahead with the program to coincide with bilateral meetings of economic and financial officials in London scheduled for Monday, a person close to China's regulators said. Vice Premier Hu Chunhua is leading the Chinese delegation. Trade tensions with Washington have given Beijing more incentive to launch the link, the person said.
The program will initially let Chinese companies issue tradable securities in London, backed by shares in Shanghai. Later, U.K. companies will be allowed to list similar instruments in China. Only Chinese companies can use the link to raise new money.
The Shanghai Stock Exchange said Tuesday it believes more Chinese companies would follow Huatai Securities' lead, while London-listed companies "willing to grow together with the Chinese market" would list in Shanghai.
The program will be structured to limit capital flight from China. Unlike in a typical depositary-receipt program, these instruments won't be fungible with underlying shares for the receipt holder. That means an investor in mainland China can only sell Shanghai-listed receipts for cash in Chinese yuan, rather than convert them into London-listed shares denominated in sterling.
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