Moribund China B-Shares Find Escape Hatch in Hong Kong Relisting
China's biggest ship container maker has revived its moribund B-shares - mainland shares priced in foreign currencies - by relisting them in Hong Kong, sparking new life in other B-shares that may be able to emulate its exit from an obsolete market that regulators want to wind down.
China International Marine Containers (CIMC) delisted its B-shares in late November, abandoning a once-vibrant market for foreign investors that policy changes rendered a little-traded backwater, and on Dec. 19 resurrected them as H-shares, or Hong Kong-traded shares of mainland companies.
Despite a lackluster start, CIMC's H-shares have gained 20 percent in their brief two-and-a-half week life, triggering a hunt for other Cinderella B-shares that might follow.
"Investors weren't too sure what to expect with the first B-to-H relisting, but after what happened with CIMC, I think people are starting to get interested," said Hong Hao, chief strategist at Bank of Communications International Securities.
(Read More: Why Hong Kong's Bull Market Will Last)
"The B-to-H concept will likely remain a very strong thematic play this year." The firms considered most likely to follow CIMC to Hong Kong are big companies such as China Vanke, China's largest listed property company, which a Hong Kong newspaper said could make an announcement as soon as this week.
Trading in Vanke's shares was halted on Dec. 25 pending an announcement, with the B-shares last changing hands at HK$12.50 per share, their highest since mid-2009. That put the total value of its outstanding B-shares at HK$16.4 billion ($2.12 billion). Vanke could not be reached for comment during office hours on Friday.
Hong Kong-listed Vanke subsidiary Winsor Properties also surged 22 percent last Thursday to its highest in more than three months, on expectations its business would be reorganized if Vanke B-shares move to Hong Kong, where exchange rules require issuers with two or more listed companies to guarantee they will not compete directly with each other.
Chongqing Changan Automobile and glass maker CSG Holding are also cited as high-profile companies with B-shares that meet Hong Kong listing criteria. Changan Auto's B-shares jumped 7.8 percent on Friday while CSG's climbed 9 percent, far outperforming their benchmark indexes, in heavy trading volumes.
(Read More: Will 2013 Be the 'Break-Out' Year for China Stocks?)
The Shenzhen B-share index, which hosts B-shares denominated in Hong Kong dollars, has surged 23 percent from a Dec. 3 nadir, outperforming a 20 percent jump in the CSI300 index of the top Shanghai and Shenzhen yuan-denominated A-shares over the same period.
On Friday, it closed up 3.7 percent, compared with a 0.1 percent increase in the CSI300 index. Volume for the day was 1,799 share units, the heaviest trading day since November 2010.
But the rally has been more modest on the U.S. dollar-denominated Shanghai B-share market, which is up 15 percent since Dec. 3.
And while B-share buying may pay off for investors focusing on promising tickers, it does not address the fundamental problem of what to do with the bulk of B-share companies that analysts say have little business being listed at all.
"Any attempt by regulators to do something with the B-shares is a move in the right direction," said Chris Powers, analyst at Z-Ben Advisors. But for tickers with no liquidity, he added, Beijing needs to figure out how to get them off the boards.
For CIMC's investors, the pop marks a long-awaited payoff. Shareholders were originally offered the option to cash out their B-shares at the company's last traded share price plus a 5 percent premium, equal to HK$9.83 per share. Ninety percent of its B-share holders opted instead for the move to Hong Kong.
It turns out they made the right choice. As of last Friday, when the Hong Kong shares ended at HK$15.34 each, their holdings were worth more than half again as much as the cashout offer.