Chinese brokerage giant seeks to raise US$1.25 billion in HK’s largest IPO

Investors are seen at a stock exchange in Hangzhou, east China’s Zhejiang province on February 11, 2019, the first trading day of the Year of the Pig. Photo: Xinhua

HONG KONG, Apr 11, 2019, SCMP. Shenwan Hongyuan, China’s sixth largest securities firm by market value, is seeking to raise as much as US$1.25 billion in Hong Kong’s largest IPO this year to replenish its capital and expand internationally, reported the South China Morning Post.

Shenwan, already listed on the Shenzhen Stock Exchange, is set to become the 12th Chinese brokerage firm with dual listings in Hong Kong and mainland markets.

The firm, controlled by state-owned Central Huijin Investment, plans to sell 2.5 billion shares priced between HK$3.63 and HK$3.93 per share, with 94 per cent of the offering dedicated to institutional investors and the rest for the general public, according to a term sheet obtained by the South China Morning Post.

Shenwan is expected to list on the main board on April 26, with pricing due on April 18.
The listing plan came after Shenwan reported a 9.6 per cent fall in net profit for last year, mainly due to a significant drop in commissions and brokerage fees.

Shenwan Hongyuan is the result of multiple mergers. In 1996, the Shanghai firms Shenyin Securities and Wanguo Securities merged to form Shenyin Wanguo Securities. Wanguo, founded in 1988, was the first securities firm in Shanghai, while Shenyin started life two years later.

In 2015, Shenyin Wanguo merged with Hongyuan Securities in the biggest brokerages merger in China valued at nearly 40 billion yuan. Hongyuan Securities, set up in 1993 in Xinjiang, was the first listed securities firm in China.

China’s brokerage industry struggled last year because of the market downturn and a slowing economy. The Shanghai stock index was the world’s biggest loser last year, down 24.6 per cent. Stock trading volumes and IPO fundraising both plunged to the lowest levels since 2014. That caused a 41 per cent slide in the securities industry’s total profit to 66.6 billion yuan (US$9.9 billion), official data showed.

Hong Kong’s IPO market has cooled since the start of this year, tracking a global trend, as the ongoing US-China trade war and slowing global growth have weighed down deal making activities.

IPOs of 37 companies raised a total of US$2.6 billion in the first quarter, down 16 per cent from the same period last year. Still, Hong Kong ranked second globally by deal value, behind Nasdaq.

Shenwan said some of the proceeds will also be used to expand services overseas like cross-border fundraising, deal making, and asset management.

13 cornerstone investors have committed US$829 million.

ICBC Asset Management has agreed to invest US$300 million, followed up by Huaxia Life’s US$100 million and China Life Insurance’s US$80 million.

China Reinsurance, New China Life Insurance, State-owned Enterprise Structural Adjustment China Merchants Buyout Fund, and Suning International are investing US$50 million each.

The rest include Sichuan Development, Taiping Life Insurance, China Saite (Hong Kong) Company, Changjiang Pension Insurance, Pacific Asset Management, and PICC.

The above cornerstone investors have a six-month lock-up period for the shares from the listing date.

Shenwan’s investment banking revenue plunged 37 per cent in 2018 from the previous year, followed by a 28 per cent fall in brokerage fees.

It also wrote off 618 million yuan in credit impairment loss, mainly due to its losses resulting from the pledged shares meltdown in the A-share market last year.

In an effort to ease the financial pressure, Shenwan issued several bonds last year, including 7 billion yuan in July and 5.1 billion yuan of subordinate debt in September.

In January, it planned to raise 8 billion yuan through a bond sale, but only raised 2.2 billion yuan eventually.

As of Thursday, the firm had outstanding bond principals of 64.4 billion yuan, equivalent to 19 per cent of its total assets, according to data compiled by Bloomberg.

Its debt to asset ratio had reached 75.23 per cent by the end of last year, higher than the industry average.

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