Dual-currency listings in Hong Kong are not a new idea. The city's regulators first allowed them back in 2011 when it began jostling for position as the number one offshore RMB hub.
At the time, though, no-one was very impressed. Local media called it a lousy idea. Several names — including jewellery company Chow Tai Fook, Sun Art Retail and Haitong Securities — toyed with the possibility before dropping it in favour of a more straightforward Hong Kong dollar listing.
Two and a half years later, despite a continued push by the Hong Kong Stock Exchange, which has been talking to bankers and companies about the benefits, not much has come to fruition. There has been only one dual-currency deal – a follow-on by Hopewell Highways in October 2012 — and a couple of single-currency renminbi listings.
Bankers complain that the hassle of a dual currency IPO is not worth it, arguing that the structure is unlikely to generate any extra demand — and investors will convert the currency back to US dollars anyway. Many Hong Kong deals are small: splitting a deal into two currencies would only reduce liquidity in the shares further. And also, until recently the RMB pool among retail investors has been insufficient to support a larger dual-tranche trade.
But the idea is back on the table. Rumour has it that pork processer Shuanghui is considering structuring its planned HK$46.8bn ($6bn) IPO as a dual-currency deal.
Whether it will follow through is another matter — the IPO is a big one and there are plenty of suggestions being thrown around about its potential structure. But despite incredulity from certain quarters, it is possible that the dual currency stars are aligned at last.
Good timing
The timing is good. Unlike in 2011, there is now enough offshore RMB liquidity in Hong Kong to support the retail bid. And as dim sum bonds lose their novelty, investors are keen to diversify their investments.
Shuanghui is well known among investors and the company has a history of successful innovative issuance — last year it raised $4bn through a syndicated loan in the Asian bank market, alongside a deal in the US, to fund its $7.1bn purchase of US company Smithfield Foods. Furthermore, the Hong Kong listing will be large enough that liquidity won’t be hurt by a dual currency structure.
While such a trade is unlikely to improve pricing, it shouldn’t hurt it either. In addition, renminbi funds make more sense for Shuanghui, which would bring the proceeds onshore, as it would reduce the company's hedging costs. It should also get a more diversified investor base.
It’s true that the HKEx is pushing for dual currency IPOs in Hong Kong because it wants to develop its offshore RMB credentials, but in this case the issuer would clearly benefit too. It would be useful for the market to have a reference point, particularly if it turns out that demand for the structure is better than expected.
And despite the fact the onshore IPO market opened at the end of last year, the waiting list remains long, which means a dual currency listing in Hong Kong may be a better option for onshore names. As the offshore RMB pool grows, this will become increasingly possible.
Shuanghui is expected to submit its new listing application to the local authorities this month. The pig company could be the perfect guinea-pig to prove a Hong Kong dollar/RMB combo is more than just a gimmick.