ZTE to launch HK IPO

Market sources say Shenzhen-based telecommunications equipment maker ZTE Corp., which listed on the Shenzhen bourse in 1997, is now planning a US$350 million initial public offering in Hong Kong in December.

The listing will be closely watched as other companies are expected to follow suit to take advantage of better exposure to overseas investors.

"If everything goes smoothly, ZTE will be the first mainland-listed company to dual list in Hong Kong," the source said, referring to the fact that so far all companies listed both on the mainland and Hong Kong first sold their H shares in Hong Kong before floating their A shares on mainland bourses.

A and H shares are stock categories of Chinese companies. A shares are yuan-denominated shares that trade on the mainland and are reserved only for local Chinese investors and qualified foreign institutional investors. H shares are Hong Kong dollar-denominated shares of mainland-registered companies that trade in Hong Kong.

One reason for the "H first, then A" share practice, which is not obligatory, is that it takes far longer the Chinese authorities to approve A-share IPOs than their H-share counterparts.

It generally takes a company at least two to three years from the day it mandates a listing sponsor to get its shares listed on two stock exchanges on the mainland.

Under smooth conditions, it takes only about a year for a company to sell an IPO in Hong Kong.

As A share-listed companies grow, more are expected to follow ZTE's lead and look to Hong Kong to raise fresh funds and widen its investor base to foreign stakeholders. According to sources, China Minsheng Banking Corp. (00016.SH), the country's first privately held commercial bank, could be the next to follow ZTE to Hong Kong.

As a rule, the price earnings ratio of the A shares listed on the Shenzhen and Shanghai bourses are higher than the H shares of mainland firms listed in Hong Kong.

In the case of ZTE, its A shares are trading at 17.3 times 2004 earnings, according to Thomson Financial. The P/E ratio of its H shares can only be calculated once it sets the offer price.

Even so, ZTE's A shares have a markedly higher P/E ratio than the average of 10 to 15 times 2004 earnings of the telecommunications equipment industry as a whole.

ZTE has said it has received approval from the China Securities Regulatory Commission to offer up to 162.2 million shares in a Hong Kong listing. The company did not disclose the size in terms of its total equity.

ZTE has said the proceeds will fund its overseas expansion as well as research and development.

In the first six months of 2004, ZTE posted a net profit of 513 million yuan (US$62 million), up from 195 million yuan in the same period last year.

Source: CRI news