Lenovo to sell CDRs in Shanghai, boosting Star Market’s pitch for China’s national champions to raise funds at home

Lenovo, the world’s largest personal computer maker, is seeking shareholders’ approval to sell Chinese depositary receipts (CDRs) in Shanghai, in a move that further opens the city’s stock exchange for offshore companies to raise capital.

The owner of the IBM Thinkpad laptop brand is seeking to issue 1.3 billion new shares, or 10 per cent of its enlarged capital, through CDRs, Lenovo said in a Tuesday announcement to the Hong Kong stock exchange, without specifying the amount raised. Based on Tuesday’s closing price of HK$8.05 per share, Lenovo’s CDR sale could raise up to HK$10.8 billion (US$1.4 billion).

The pending sale would be a breakthrough for Shanghai’s Science Technology and Innovation Board, or Star Market, in its pitch to attract China’s technology champions and most promising start-ups to raise capital in their home ground. Lenovo, with a market value of HK$106 billion, would be the kind of flagship that the Star Market needs to attract followers.

“A successful test case by Lenovo could encourage other ‘red-chip’ companies to follow suit,” said China Renaissance’s head of macro and strategy research Bruce Pang, because “there are concerns and lack of clarity about whether CDRs are fungible to stocks in offshore markets.”

Depositary receipts are certificates issued by banks that represent shares issued by companies, typically by those domiciled outside the market where they are traded. Some Chinese companies listed in Hong Kong or in mainland China have American depositary receipts (ADRs) traded in New York, to enable US and European investors access beyond the Asian market hours.