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13 Int'l Fin. L. Rev. 41 (1994)
First Direct Listing for Chinese Company in New York

handle is hein.journals/intfinr13 and id is 594 raw text is: PRCI&~n h NwYoik First direct listing for Chinese company in New York Mark S Bergman, Richard S Borisoff and Nicholas C Howson of Paul, Weiss, Rifkind, Wharton & Garrison, New York, look at legal aspects of the first direct listing of a PRC company in the US. The People's Republic of China (PRC) has begun a sys- tematic process of financing selected state-owned enter- prises and is looking offshore for sources of capital. A few state-owned enterprises have listed securities on for- eign markets and others have been designated for over- seas initial public offerings in the near future. This process can be expected to accelerate in coming years. On August 4 1994, Shandong Huaneng Power Development Co Ltd (Shandong Huaneng) became the first PRC enterprise to list its securities directly on the New York Stock Exchange (NYSE). Shandong Huaneng listed American Depositary Shares (ADSs), each representing 50 ordinary N Shares. This transaction added another letter to the alphabet soup of Chinese capital markets options: N Shares, which now join A Shares (Renminbi-denominated shares traded on PRC exchanges and held by domestic investors), B Shares (Renminbi-denominated shares traded on PRC exchanges and held by overseas in- vestors) and H Shares (Hong Kong-dollar denominated shares traded on the Hong Kong Stock Exchange). Shandong Huaneng's ADSs were listed in connection with a global initial public offering of ADSs through US, European and Asian syndicates. The Shandong Huaneng offering was unprecedented in a number of re- spects, and the problems that arose and were resolved in connection with the offering and listing are likely to arise in subsequent offerings byPRC state enterprises. Shandong Huaneng Shandong Huaneng owns interests in existing coal-fired electric power plant projects in Shandong Province. It plans to expand these projects and build and operate new projects. The company and its majority-owned sub- sidiaries have an installed capacity of 1,325 MW and plan to expand capacity to at least 6,050 MW Shandong Huaneng was formed by Huaneng Power Generation Corporation, Shandong International Trust and Investment Corporation and Shandong Province Electric Power Company. Interests in the power projects contributed to Shandong Huaneng in connection with its formation were owned in whole or in part by various combinations of the three promoters. The promoters were required to obtain an appraisal of all of the assets to be contributed by them and conduct a feasibility study of the establish- ment of a new entity. The promoters contributed their respective interests in the various plants in return for legal person A Shares, based on the appraised value of the plants and the proportionate interests contributed. Under present PRC law, such legal person shares are not transferable absent special approvals. The offering The Shandong Huaneng offering was unprecedented in a number of respects. It was the first direct NYSE listing by a PRC company and, hence, the first issuance of N Shares. Before this listing, PRC companies had: * accessed foreign capital markets through indirect or back door listings, involving the issuance and listing of shares by Bermuda holding companies or the transfer of PRC assets to a Hong Kong shell; e listed B Shares on the Shanghai or Shenzhen stock ex- changes; or o listed H Shares on the Hong Kong stock exchange, in- cluding an issuer that followed such a listing with a US offering and listing of ADSs representing H Shares. Secondly, it was the first listing on any foreign stock exchange by a PRC power company, and it was the first PRC company to access overseas capital markets follow- ing the promulgation of the PRC Company Law. On the basis of the offering, as well as general regula- tory developments in the PRC last year, it appears that, at least for the foreseeable future, the significant hurdles to International Financial Law Review December 1994141

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