China plans to bring home tech giants with domestic share issue option

HONG KONG (Reuters) - China aims to get its home-grown, overseas-listed companies to float on the domestic exchanges through the depositary receipts route, people with knowledge of the matter said, in a plan that would pit Shanghai and Shenzhen against Hong Kong in the battle to host China’s tech giants.

The move forms part of efforts by Beijing to counter the threat of a large number of its local technology companies opting for New York or Hong Kong listings instead of their home market, one of the people said.

The guidelines for China depositary receipts (CDRs), similar to American depositary receipts, is likely to be finalised in the second half of this year by China’s securities regulator, said the two people.

The China Securities Regulatory Commission (CSRC) will start accepting CDR applications from interested firms toward the end of the year, they said, declining to be identified due to the sensitivity of the matter.

A depositary receipt is a financial instrument representing a firm’s publicly traded shares. Trading in depositary receipts rather than the underlying shares reduces administration and transaction costs, both for companies and for investors.

These receipts represent ownership of a set number of company shares that can be listed and traded independently from the underlying stocks, and are often used by emerging market companies to raise capital in places like the United States and London.

The CSRC plan, if implemented, could give Chinese investors access to leading overseas-listed local technology companies including Alibaba Group Holding Ltd, Baidu Inc, JD.com Inc, and Tencent Holdings Ltd.

All these firms preferred to list overseas due to Beijing’s strict rules on their track record of profits, as well as because of the lengthy time taken to clear the IPO applications in the world’s second-largest economy.

CSRC could not be immediately reached for comment outside of business hours. Financial magazine Caixin first reported the planned CDR move on Monday.

Baidu declined to comment, while Alibaba, JD.com and Tencent did not immediately respond to Reuters request for comment.