Hong Kong Airlines poised for dual-currency IPO

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Hong Kong Airlines is aiming to tap small investors’ bets on a rising renminbi with the city’s first dual-currency initial public offering.

The carrier’s shares, to be offered in both renminbi and Hong Kong dollars, will make the US$500m deal something of a test of retail investors’ faith in the Chinese currency, which has been dented this year by the renminbi’s unexpected weakness.

Hong Kong is home to more than half the Chinese currency held offshore, but a lack of investment products and a long-held belief that renminbi would rise steadily has to date resulted in largely idle deposits.

The airline, which offers short-haul flights from Hong Kong to destinations including Bali and Beijing, filed its application with the city’s stock exchange on Friday and its prospectus is expected to be available as soon as Tuesday.

The deal is also a marketing opportunity for the carrier, which is considering offering air miles or discount tickets as shareholder perks, according to a person familiar with the matter.

Any perks, and the exact proportions of the shares to be offered to retail and institutional investors, have not yet been finalised.

Institutional fund managers usually have access to onshore renminbi and are more likely to want shares denominated in Hong Kong dollars.

Hong Kong IPOs typically allot about 10 per cent of a deal to small investors and include a “clawback” mechanism under which, if retail demand is strong enough, more shares will be reallocated to that market.

The territory held nearly 60 per cent of all offshore renminbi – or some Rmb960bn ($156bn) – as of June, according to the Hong Kong Monetary Authority, up from Rmb861bn at the end of 2013. Singapore is the next largest offshore centre, home to about 13 per cent of the offshore renminbi market.

The renminbi reached a peak of Rmb6.05 against the US dollar in January before catching the market off guard with a slide back to Rmb6.25 by May. It has since recovered to Rmb6.14 but the weakness has shaken investor certainty that the only way was up for the tightly controlled currency.

Although the Hong Kong stock exchange has allowed renminbi-denominated shares since 2011, only two offerings are priced in the Chinese currency and both have suffered low turnover.

The Hong Kong Airlines deal, expected to price in the fourth quarter, also comes as Hong Kong and Shanghai gear up for the so-called “stock connect”, a mechanism linking the cities’ bourses that will allow investors based in either centre to trade directly shares in the other market for the first time – which in theory could increase interest in southern renminbi-denominated stocks. Neither side can invest in IPOs, but both can buy shares as soon as they are available in the secondary market.

Hong Kong Airlines did not return a request for comment. JPMorgan is sole sponsor of the IPO, although other banks are expected to be awarded roles as the deal progresses.

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