Yangzijiang makes subdued renminbi trading debut on SGX

The debut of equities trading in offshore renminbi by Yangzijiang Shipbuilding on the Singapore Exchange (SGX) on Monday was not quite a Big Bang. Indeed, with only 27,000 shares traded the entire day it went pretty much unnoticed.

Perhaps that was why no shares at all changed hands in the renminbi-denominated stocks yesterday.

Still, the fact that companies now have the ability to trade in renminbi is a key step for Singapore as it aims to become an offshore renminbi centre to rival Hong Kong. It may take time to reach big volumes in the product, but the platform is in place if and when the demand from investors does materialise.

There is already trading in offshore renminbi bonds and the renminbi-denominated China A50 index future on SGX, but this is the first time the Chinese currency can be used for equities trading.

“This is an exciting and positive development for Singapore as an offshore RMB centre. It also demonstrates how SGX is contributing to the infrastructure and capabilities required for issuers and investors to tap on opportunities offered by China,” SGX CEO Magnus Bocker said when the exchange announced the upcoming debut a week-and-a-half ago.

Yangzijiang is already listed in Singapore and the trading of its shares in renminbi is done through the SGX’s dual-currency platform. The Chinese shipbuilder will continue to trade in Singapore dollars as well.

In addition to the 27,000 renminbi-denominated shares, another 2.3 million Singapore dollar-denominated Yangzijiang shares also changed hands on Monday. This compares with an average daily trading volume of about 8.4 million shares during the past six months. The share price fell 1.6% on Monday before adding 0.5% yesterday.

Since China started to allow cross-border trade settlements in renminbi offshore, there has been talk about the need for more investment products denominated in the Chinese currency, particularly those that pay higher interest than the renminbi deposit accounts that are now widely available in a number of offshore centres, including Hong Kong, Singapore and Taiwan.

The thinking is that companies will not want to accumulate the amount of renminbi necessary to settle trades on a regular basis unless they can gain a decent interest on the cash when it is idle. And as the offshore renminbi deposits held by individuals and other investors have grown, the same argument has been applied to then, albeit for a different reason.

Hong Kong led the way with offshore renminbi-denominated bonds, also known as dim sum bonds, in the summer of 2010. They are now considered a staple bond product that is being offered to issuers alongside bonds in any other local currency.

But equity products have been slow to follow. Even though the platform has been available for close to three years, Hong Kong only has two listed companies traded in renminbi. The groundbreaker was Hui Xian Reit, a Li Ka-shing sponsored real estate investment trust that focuses on commercial properties in China and which listed in April 2011 after raising the equivalent of $1.6 billion from a renminbi-denominated IPO.

It was followed by Hopewell Highway Infrastructure (HHI), a builder and operator of expressways, tunnels and bridges in China’s Pearl River Delta region, which in October 2012 did a $61 million follow-on share issue denominated in renminbi. HHI already had shares listed in Hong Kong dollars and the follow-on made it the first company on the Hong Kong stock exchange to adopt a dual-currency regime that allowed its shares to trade in both Hong Kong dollars and offshore renminbi. Shares in the two currencies are fully fungible, but are held as separate counters.

Trading in both names is pretty illiquid, but much like Yangzijiang is now doing in Singapore, they have shown that the platform — both for stocks denominated solely in renminbi, and for dual-currency listings — is working and is there for any company to use when they see the need, or the investor demand starts to pick up.

For HHI, whose operations are focused on China and whose functional currency is renminbi, it was also beneficial to raise long-term capital in renminbi to fund the development of its various projects. So, while its initial issue may have been an experiment, it certainly had some logic too it.

Similarly, Yangzijiang is one of China’s leading ship builders and it too has the renminbi as its functional currency. It didn’t issue any new shares in connection with making its shares available to trade in renminbi, however. In fact, in the press release announcing the trading debut, it primarily stressed the greater flexibility and convenience it will bring to investors.

“There are many investors based in mainland China, Hong Kong and other regions, who wish to invest in Yangzijiang’s shares using RMB and now with the dual-currency trading platform, the investors have an opportunity to participate in the group’s shareholding without the worry of foreign exchange risk or incurring charges during currency conversion,” the company said.

It is not the first time that the company is trying to broaden its investor base by making use of an innovative product. In September 2010 it became the first mainland Chinese company to list in Taiwan via Taiwan depositary receipts (TDRs). Yangzijiang raised $141 million from the sale of TDRs ahead of the listing in a deal that was well received and boosted the demand for its Singapore shares as well.

Yangzijiang’s Singapore-listed shares will be held as one pool in investors’ accounts, irrespective of whether they initially bought them in Singapore dollars or in renminbi. Investors can also sell them in either currency. This means the overall liquidity in the stock shouldn’t be impacted too much by the addition of a renminbi trading option. However, for investors to be able to buy shares in renminbi, there has to be someone else willing to sell in the same currency and in all likelihood it will take some time to reach a decent two-way flow.

The company will continue to pay dividends in Singapore dollars.

The SGX introduced its dual-currency platform in March 2012, with the currency options being Hong Kong dollars, Australian dollars, US dollars, renminbi and Singapore dollars.

The first issuer to take advantage of this was Hutchison Port Holdings Trust, a business trust sponsored by Hong Kong conglomerate Hutchison Whampoa and Singapore ports operator PSA International. It listed in Singapore in March 2011 after raising $5.45 billion in Singapore’s largest ever IPO. Interestingly, HPH Trust initially chose to list in US dollars, but added trading in Singapore dollars a year later when the option became available.

Since then, seven exchange-traded funds have also made use of the dual-currency platform, according to data on the SGX website. However, until Yangzijiang no other company has opted to have their stocks trade in two currencies. Also, like HPH Trust, all the ETFs have chosen to trade in US dollars and Singapore dollars. So far, no one has tested the use of either Hong Kong dollars or Australian dollars.

SGX spokeswoman Loh Wei Ling said there are other companies considering dual-currency trading using the renminbi, although no other issuer has submitted an actual application at this point.