Financial Regulatory Forum

REUTERS SUMMIT – BNY Mellon sees first China Depositary Receipt listings next year

By Reuters Staff
September 2, 2009

Larry Chen, chief representative in BNY Mellon's Beijing office, attends the Reuters China Investment Summit in Beijing, September 2, 2009. The Bank of New York Mellon said it expects the first China Depositary Receipts (CDRs) to be issued next year, in a highly anticipated new vehicle that will allow foreign-headquartered firms to list in China. REUTERS/Christina Hu (CHINA BUSINESS) By Michael Wei and Jason Subler
BEIJING (Reuters), Sept 2 – The Bank of New York Mellon said it expects the first China Depositary Receipts (CDRs) to be issued next year, in a highly anticipated new vehicle that will allow foreign-headquartered firms to list in China.

BNY Mellon has been working closely with the China Securities Regulatory Commission (CSRC) and the country’s two stock exchanges, advising them on the rollout of CDRs, which represent foreign companies’ equity shares.

Listing through CDRs in mainland China would be easier for so-called “red chips” — Chinese firms listed in markets such as Hong Kong — than to float shares in Shanghai or Shenzhen.

“The CDRs, I think, are still being actively considered, it’s a viable option,” Larry Chen, chief representative in BNY Mellon’s Beijing office, told the Reuters China Investment Summit.

“We are expecting to see them maybe next year. I don’t know if the first half or second half,” said Chen, who oversees the bank’s business in China.

Major Hong Kong-listed Chinese firms like China Mobile and CNOOC have said they’d be interested in making such listings.

BNY Mellon would likely help major Chinese banks act as depositary banks for CDRs, not serve as the depositary bank itself, Chen said at the summit in the Reuters office in Beijing.

Chen also said BNY Mellon expected to receive regulatory approval by the end of the year for its planned fund management joint venture with Xi’an-based Western Securities, in which it will hold a 49 percent stake, the maximum allowed.

“We are in the final stage of getting regulatory approval from the CSRC. All the signs are pretty positive,” he said.

“The indication is we’ll be getting the JV license by the end of the year.”

So far, more than 30 foreign institutions including American International Group and HSBC have entered China’s fund management industry.

Chen said the venture would probably start by offering domestic A-share funds, but would hope to issue funds investing in overseas markets under the Qualified Domestic Institutional Investor (QDII) scheme as soon as possible, which would be a minimum of two years after the JV’s launch under current rules.

Bank of New York Mellon, created in 2007 by a merger between the Bank of New York and Mellon Financial Corp, is among a number of U.S. banks found to have sufficient capital under the government’s stress test.

Chen added that the pipeline for Chinese firms issuing American Depositary Receipts (ADRs) was also picking up after a relatively slow period in the wake of the financial crisis.

The bank acts as depositary for more than 2,100 American and global depositary receipt programmes, acting in partnership with leading companies from 67 countries.

“There are quite a few in the pipeline,” he said, adding that the bank had done only one such deal so far this year

“We are expecting more Chinese IPOs by the end of the year.”

(For other news from the Reuters China Investment Summit, please click here)

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