To B or not to B

Fallen out of love with it B-share listing: CIMC

First introduced in 1992, B-shares have fallen into obscurity. Originally they were a means for foreign nationals to invest in companies listed in China, buying the stock in US or Hong Kong dollars.

But with many of the top Chinese companies instead choosing to list overseas, interest in B-shares never reached a critical mass and the paucity of buyers meant liquidity was thin. They soon became unloved and disappeared from the radar of international investors; and even after locals were allowed to buy them, they didn’t bother.

In his 2008 book China Fireworks, investor Robert Hsu devotes just a single page to dismissing them: “Overall there just isn’t enough interest in B-shares to make them an attractive investment vehicle, and they will continue to be an also-ran in the stock marketplace,” Hsu concluded. “You can put them out of your mind.”

However, they are back in the news, as companies with B-share listings look for ways to phase out the obsolete asset class.

At the forefront is China International Marine Containers, which is at the final stages of converting its B-shares into H-shares (a more liquid category that’s traded in Hong Kong). After starting the process in August, the maker of shipping containers only needs approval from the Hong Kong Exchange, reports Securities Daily. If the procedure gets the go-ahead, CIMC will be the first company to complete such a conversion, leading the way for others to do the same.

It is not hard to see why a company might want to ditch its B-shares. They no longer function as a tool for raising new capital (no B-shares have been issued in China for more than 10 years) but a company with a B-share listing still has to pay the necessary fees. Meanwhile the thinly-traded stock type accounts for just 0.2% of annual turnover on Chinese bourses.

Switching to H-shares in Hong Kong isn’t the only option. Luthai Textile Joint Stock Company began repurchasing its own B-shares earlier this year and cancelling them. Another solution is for a company to delist B-shares and then relist on the A-share market in Shanghai, although no company has done this yet. Even if a company wants to keep its B-share listing, it might not have the choice, as new rules from the Shanghai and Shenzhen stock exchanges in July require forcible delisting if share prices fall below Rmb1 for more than 20 days, reports Bloomberg.

Electronics manufacturer Tsann Kuen (China) Enterprise looked as though it would be the first B-share company to fall foul of the new rule. It suspended trading in early August, on the eighteenth day that its shares traded below the minimum level, and only two days before the rules would have been enforced, reports Reuters.

For the 108 remaining companies with a B-share listing, the question is whether they will be able to find a way out on their own, or whether they will have to be pushed out by the regulator.

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