Walter Hutchens’ Blog

Yesterday the CSRC posted a prospectus for the Bank of China on its website.

Yes, BOC just listed in Hong Kong, but this prospectus is for a listing on the mainland’s A-share market—in other words, for shares that are inside China’s Great Wall of currency controls, whereas those in Hong Kong are outside the Great FOREX Wall.

Because of the PRC’s foreign exchange controls, PRC investors (banks, insurance companies, mutual funds, their national social security trust fund and of course individual retail investors), cannot freely buy shares in the BOC, even after its Hong Kong IPO. An A-share listing would fix this. It would also give BOC even more capital. No doubt it would also please a number of PRC bankers, lawyers, accountants and officials at the Shanghai Stock Exchange (where BOC will presumably list its A-shares).

BOC disclosed that it planned an A share issuance in its Hong Kong IPO materials. PRC press reports (like this Xinhua story in English) indicate the A-share listing could come quite soon.

BOC’s draft A-share prospectus is nearly 300 pages long. I’ve put the Chinese PDF file here. The CSRC copy is, for now, here.

The English prospectus for BOC’s Hong Kong IPO is here. The interesting Risk Factors section is here.

Today a New York Times article by Andrew Kramer notes the relative lack of success of Russian companies in conducting IPOs on global markets, contrasting this with China’s experience (including last month’s IPO in Hong Kong of the Bank of China which raised USD 9.7 billion, the world’s largest IPO in six years).

Quoting a report by Ilya V. Sherbovich from Deutsche Bank in Moscow, the Times observes:

Among emerging market economies, Russia was in eighth place last year in number of initial stock offerings, behind Israel and Poland. But measured by the value of stock issued, Russia, with $5.2 billion, was in second place behind China, with $19.4 billion, according to the report.

Note how far China as the number one emerging markets issuer is ahead of number two Russia—nearly four times!

One other striking paragraph indicates that enthusiasm for Russian IPOs was dampened when:

. . . an article in Forbes magazine quoted the chairman of the board of Kuzbassrazrezugol, a Siberian coal company with a stated goal of going public, explaining his management practices. They included threatening employees with death.

I don’t think many Chinese managers would brag about using death threats as a motivational tool, but it’s not clear to me that the other problems identified in the article as affecting Russian IPO candidates don’t equally affect PRC companies. The Times notes:

The shortfalls [of Russian IPOs] suggest that Russian companies are going public too early, for the wrong reasons, or are valuing their shares too high, critics say. Investors have also raised questions about the lack of transparency in accounting at some Russian companies and the shortfalls in corporate governance standards.

If these are the factors retarding Russian IPOs, should we assume the relatively greater success of PRC IPOs means Chinese firms have more financial transparency, better corporate governance and more conservative valuations than Russian companies? Um, I don’t know much about Russia, and one should not wholly discount the restructuring that occurs before PRC IPOs, but the notion that PRC firms offer dramatically better transparency and corporate governance than Russian firms seems counter-intuitive (four times better?).

Maybe the reason PRC issuers have hit home runs while many Russian ones aren’t even coming up to bat is more related to the perceived option value of the two countries. China has a bigger population and is perceived to have a tremendously positive overall growth and reform story. Russia is smaller and is perceived to have a less successful reform process, with lower overall growth prospects.

Today I went to the China Central Television (CCTV) station in Beijing to appear on Dialogue, a show on CCTV 9, China’s national English-language station.

The other guest was Ha Jiming, the chief economist for China International Capital Corporation (CICC), China’s leading investment bank.

I think the host wanted Dr. Ha and I to cross swords a bit. I passed up several chances to overtly disagree with him (he implied for instance that all countries require companies to be profitable to conduct IPOs and under-emphasized the degree of difference between the US and PRC regulatory regimes in other ways). Instead I tried to make a few points by playing off our larger areas of agreement. It made for a civil though I hope still fruitful exchange.

Dialogue provides oceans of time compared to most TV shows where you only get soundbites, but still the time flew by. It was all over when I felt like we were just getting started.

They taped about 50 minutes. It’s a 30-minute show, and they sometimes intersperse snippets of other interviews with the comments of the main guests, so I’m curious to see what will actually be broadcast. The show will probably air next week and should be available online once it does.

The Shanghai Stock Exchange has published guidance on its policies for IPOs, indicating it will generally arrange only one IPO per day—or two in “special circumstances.”

The market was down last week right before the resumption of IPOs (after a year hiatus). There is some concern that new listings will depress prices for existing securities, halting the bull market that has finally been building. The SHSE’s rule (and the way it is being portrayed in the PRC press) indicates they plan a measured approach to new listings. This may calm jitters about new IPOs killing the (fragile?) bull market.

These SHSE rules were no doubt approved by the CSRC, since the SHSE and Shenzhen Stock Exchanges are only nominally SROs.

The general IPO regulations for each exchange continue to be identical, and their listing standards are prescribed by law, not exchange regulation. So far there is still no regulatory competition (to attract more issuers and investors with different types of listing standards) between the SHSE and SZSE as there is between NYSE and Nasdaq (or US and European or other Asian markets).

The new SHSE IPO guidance is:

上海证券交易所首次公开发行新股发行和上市指引 [Shanghai Zhengquan Jiaoyisuo Shouci Gongkai Faxing Xin Gu Faxing he Shangshi Zhiyin]

I’ve pasted the full Chinese text of the guidance after the jump. The SHSE website has a rules and regulations section here, and it includes a link to the full text; however, the link is in a javascript format that I can’t paste here.

A Chinese Securities Journal report (in Chinese) on the new SHSE regs is here.

The general IPO regulations for both exchanges are the

首次公开发行股票并上市管理办法 [Shouci Gongkai Faxing Gupiao bing Shangshi Guanli Banfa]

Read more »

The Shanghai and Shenzhen stock exchanges have publicly named a list of firms they accuse of missapropriating funds.

PRC English-language coverage is here. The list is published in Chinese here. Its Chinese title is:

关于上市公司大股东及其附属企业非经营性资金占用的通告(上海证券交易所2006年第一号)

This year for my MBA Doing Business in China travel course I again required teams of students to produce daily content for a course blog.

I continue to refine and learn about the best way to implement this assignment, but overall I think it is a useful addition to the course.

It builds a team component into their work—the other main assignments are individual papers and class participation. Unlike law school (which I attended), business schools emphasize team work. Last year I asked teams to produce pre-trip briefings on the various sectors we would explore. There was some benefit to that (it helped them get to know each other better before the trip, and I was relieved of the duty of lecturing for several hours). But since the students aren’t beginning with much background, the quality of the information they could provide wasn’t always superlative. So this year I did all of the pre-departure lecturing myself and let the blog assignment comprise the main teamwork component of the class.

Besides being a good teamwork exercise, the blog assignment also acquaints those students not yet familiar with blogs with the fearsome power and simplicity of push-button publishing (I’ve sometimes shown them how easily someone can create your-company-sucks.com to illustrate the principle).

My MBA and honors undergraduates students are wonderfully attentive and engaged during our meetings abroad (even on the days when they are not responsible for the blog), but nonetheless I think the blog assignment helps encourage an atmosphere of active participation. Listening to a presentation that is followed by a little Q&A feels different than approaching an event as something you must quickly (and publicly) report on. I like how the ethos to “get the story (and images) for the blog” heightens the sense of engagement.

In some travel courses I’ve assigned individual journals. I think there’s a lot of value in personal, reflective writing while traveling, but I don’t like the way individual journal assignments keep all students cloistered part of each day. During their precious time abroad I’d rather have them exploring our host city rather than sitting in their hotel rooms writing. The blog as a team project may not encourage as much individual daily reflection as journals, but it doesn’t require all students to write every day, thus freeing more of them to directly experience more things while abroad.

It has proven difficult to build into these travel courses time and computer/net/projector access to view the blog on a daily basis as a class. Some students are seeing the course blog at least some of the days (when they work on it, of course, or when they get online to check their email), but I think finding a way to present each day’s entry to the entire class would be good. It would help encourage each group to do a bang-up job, knowing their effort would be subject to nearly immediate peer review/ridicule. I try to comment on each previous day’s blog posts, but actually showing them to everyone would be preferable.

Based on my experience last year, I knew this year that I should make it explicit that a good blog entry is not one that tries to capture every word a speaker utters. I explicitly told the students I want short recaps, not transcripts or data dumps of someone’s typed notes. I also stressed that a good blog entry probably includes at least one picture. I also noted linking to the web sites of speakers we here from (or institutions we visit) is desirable. I also tried to explain that while good analysis and commentary will be rewarded, a more basic requirement is simply to cover the facts of an event (who spoke to us, where we went, what we heard or saw . . .).

One issue I found is that while I continue to use an older version of WordPress (with the IImage Browser plug-in for handling photos), WordPress 2.0 has photo insertion tools built in, but they are not, alas, very intuitive, and students tended to post either enormous, template-destroying photos or little postage stamp thumbnails that were indecipherable. The professor has to figure this problem, among others, in what is I think overall a net positive contributor to my travel classes.