Big price discount sparks rush for brokerage shares
Updated: 2015-03-24 10:22
By Celia Chen in Hong Kong(HK Edition)
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GF Securities Co Ltd - the mainland's fourth-biggest brokerage firm - has proposed raising up to $3.5 billion in its Hong Kong initial public offering (IPO), the city's biggest share offer so far this year.
Guangzhou-based GF Securities said on Monday it's offering shares for sale in Hong Kong at a price range of between HK$15.65 and HK$18.85 apiece, representing a discount of at least 40 percent to the stock's prevailing trading prices on the Shenzhen Stock Exchange. The company's share price closed at 26.78 yuan ($4.28) in Shenzhen on Monday.
The securities company is scheduled to list on the Hong Kong Stock Exchange in April.
The deep discount of GF Securities IPO shares is said to have generated strong demand by investors. The company said it has secured $1.9 billion in orders from 17 cornerstone investors, which have agreed to buy and hold shares for a fixed period after the company is listed in Hong Kong.
GF Securities' share price gain of 2.02 percent in Shenzhen capped a 140-percent rally in the past six months. Another mainland stockbrokerage firm, CITIC Securities, has seen its share price surge 129 percent in Shanghai during the same period.
GF Securities' IPO comes as mainland stock is on the boil, with the benchmark index on the Shanghai bourse breaching a seven-year high. The bull run has encouraged active share trading among retail investors, helping to boost the businesses of stockbrokerage firms.
CITIC Securities Co and China Galaxy Securities Co are preparing to sell shares valued at a combined $7 billion in private placements to develop their margin financing businesses.
Meanwhile, Huatai Securities Co - the mainland's fifth-largest brokerage - and Guolian Securities Co, a smaller rival, recently applied for a listing in Hong Kong to raise a total of more than $3 billion, according to Bloomberg.
GF Securities said earlier it planned to use the proceeds from its share offering to develop its margin-financing and securities-lending business.
Edmond Chan, co-head of Capital Markets Services in PricewaterhouseCoopers Hong Kong, predicted that more mainland-listed companies will try to raise foreign capital through Hong Kong IPOs.
But stock analysts said the income of mainland stock brokerage firms could be affected by increasingly fierce competition. For instance, GF Securities cut its average commission rate for stock and fund brokerage services to 0.73 percent last year from 0.88 percent.
GF Securities posted a net profit of 3 billion yuan for the nine months to September 2014 - up 32 percent from a year earlier on a 42-percent increase in revenue to 9.8 billion yuan.
Bloomberg contributed to the story.
(HK Edition 03/24/2015 page10)