How Tsingtao's IPO in Hong Kong turned on the tap for 30 years and US$1 trillion of Chinese offshore listings

Three decades ago today, a Chinese brewery founded by German settlers offered an unusual toast on the trading floor of the Hong Kong stock exchange.

Instead of the typical flutes of champagne for cheering stock debuts, Tsingtao Brewery handed out glass mugs filled with its namesake beer for guests to celebrate its HK$889 million (US$114 million) initial public offering (IPO), the very first offshore share sale by a China-domiciled company.

Hong Kong had never seen anything like this. The trading floor turned into "bedlam," as dozens of journalists, photographers and TV camera crew jostled with up to 100 regulators, company executives and government officials in a "melee," according to the Post's 1993 report on Tsingtao's debut.

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The IPO was a success, with investors outbidding the number of available shares by more than 110 times, lifting Tsingtao's stock price by 29 per cent on debut day. The triumph paved the way for China's subsequent financial reforms in the following decades, using Hong Kong as the stepping stone in each critical step of the capital market's growth.

Guests at the Hong Kong Stock Exchange after the successful listing of Tsingtao Brewery on July 15, 1993. Photo: SCMP alt=Guests at the Hong Kong Stock Exchange after the successful listing of Tsingtao Brewery on July 15, 1993. Photo: SCMP>

Tsingtao's IPO "reflected the rapid development of the mainland's economy over the past 30 years, and the thriving growth of Hong Kong's financial market," said Kenny Ng Lai-yin, a strategist at Everbright Securities International.

Designated with the stock code 168 - an auspicious number that rhymes with the homonyms for "continuous prosperity" - Tsingtao has done well in Hong Kong. The stock has risen 24-fold since its debut, from HK$2.80 to HK$71.25 on Friday, turning the brewery into a HK$127.76 billion behemoth.

If each of the dividends Tsingtao has paid out since 1993 were reinvested in the stock, the total return would be 42 times, according to Bloomberg's analytics. Put another way: HK$5,600 paid in 1993 for one board lot (2,000 shares) of Tsingtao would overflow to HK$117,440.

Tsingtao Brewery's listing on the cover of Business Post on Friday, July 16th, 1993. alt=Tsingtao Brewery's listing on the cover of Business Post on Friday, July 16th, 1993.>

It is not just Tsingtao and its investors that have had cause to raise a glass. Regulators, investment banks, industry professionals and the local markets have all benefited from so-called H-share listings over the past 30 years. Since Tsingtao's IPO, 389 such listings have raised a total of HK$2.08 trillion.

"H shares" originally referred to the Hong Kong-listed shares of mainland Chinese companies owned or backed by the state, though today it is often used to refer to any mainland firm trading on the city's stock exchange. The term "red chip" was used to denote overseas-incorporated firms with mainland-backed parent companies.

When red chips and private enterprises are included in the mix, more than 1,400 Chinese companies have raised HK$8.2 trillion in Hong Kong in the last 30 years, accounting for about two thirds of the total. They represent 80 per cent of market capitalisation and turnover today, according to stock exchange data.

Charles Lee Yeh-kwong, who hosted Tsingtao's listing ceremony in his capacity as stock exchange chairman at the time, was the mastermind who talked to then-Premier Zhu Rongji to raise the idea of Chinese companies listing their shares in Hong Kong in the early 1990s.

"It was Premier Zhu Rongji who chose the name H shares to represent Hong Kong," Lee told the Post. "We submitted a list of proposed names to him including W shares for world shares, and I shares for international shares. Premier Zhu chose H shares, as he considered that the best name to represent Hong Kong. And it is."

Workers stick labels on bottles of Tsingtao at a brewery in the eastern Chinese city of Qingdao, in August 2000. Photo: AFP alt=Workers stick labels on bottles of Tsingtao at a brewery in the eastern Chinese city of Qingdao, in August 2000. Photo: AFP>

Without H-share listings, Hong Kong would not have attained its current status as an international financial centre, Lee said in a briefing on Friday on the eve of the 30th anniversary of Tsingtao's listing.

"Hong Kong is among the top four IPO markets in the world in the past 14 years, mainly due to the listings of mainland companies," he said, adding that credit is due to Premier Zhu for insisting that H shares adopt international standards of disclosure and governance. "The listing reform forced all mainland firms to improve their management and disclosure. It is vital to the development of the Chinese economy."

Laura Cha Shih May-lung, chairwoman of Hong Kong Exchanges and Clearing, was among the regulators to usher in H-share listing when she was with the Securities and Futures Commission.

"H shares fuelled the growth aspirations of ambitious Chinese companies, helping them to raise funds and elevating their role and visibility on the international stage," Cha told the Post.

"They also cemented Hong Kong as the go-to market for international capital seeking opportunities in the region, allowing investors around the world to tap the incredible China growth story of the last three decades. I am honoured to have played a part in this journey."

Tsingtao Brewery was established by German and British merchants in Qingdao, Shandong province, in 1903 as Germania-Brauerei Tsingtao - when the penultimate emperor Guangxu was still on the throne.

Its former company secretary, Lucy Yuen Lu, who handled the listing, said the brewer's reputation as a well-known international brand helped it to become the first to list in Hong Kong.

"The Hong Kong and mainland regulators wanted the first China company listing in Hong Kong to be successful. And it was. We had a 110-times oversubscription," she said in an interview with the Post in 2007.

Teresa Ko, Hong Kong and China chairman of law firm Freshfields Bruckhaus Deringer, has been involved in many H-share listings. She recalled the challenges of the early days.

"Many mainland executives had no concept of due diligence but they were very helpful with our verification exercise and lined themselves up with supporting documents to show to us," she said.

"Back in those days, there were no mobile phones - only one line that could make international calls on a black telephone locked in a box . The box was in a hotel room which was locked every night at 9pm and we had to queue to make a phone call."

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2023 South China Morning Post Publishers Ltd. All rights reserved.

Copyright (c) 2023. South China Morning Post Publishers Ltd. All rights reserved.