Central China Securities (CCSC) has secured $60 million worth of cornerstone investors for its $200 million Hong Kong IPO, which begins a roadshow on Monday.
Two mainland investors – Mao Yuan Capital and Sunshine Empire – agreed to buy 30% of the deal as cornerstones, while the deal also received initial interest from anchor investors, said a source familiar with the situation.
The company is planning to sell 598 million shares or 25% of the company’s total share capital at an indicative price range of HK$2.51 to HK$3.14 per share, representing a 2014 price-to-book ratio of 0.95 to 1.12 times, according to multiple sources.
Central China Securities – the largest securities firm in Henan province, which has one of the highest GDP figures in China and also the third largest population – will be the fourth Chinese brokerage to list through an IPO in overseas markets.
Citic Securities, China Galaxy Securities and Haitong Securities have already listed their shares in Hong Kong during the past two years. The shares were trading 23.9% ahead, 5.7% down and 9.2% up compared to their IPO price, respectively.
CCSC could also be the first medium-sized and regionally focused mainland securities firm to list in Hong Kong. The company, which initially planned to list in the A-share market but looked overseas because of the long waiting time, is set to test the market for other brokerages of this kind who also have listing plans.
At least seven securities firms are lining up for an A-share IPO, including Zheshang Securities, Guotai Junan Securities, Hua An Securities, Oriental Securities, Dongxing Securities, First Capital Securities and Guosen Securities.
CCSC believes the potential for the region’s economic growth and China’s brokerage business boom should help the company maintain sustainable net profit, which was at a CAGR of 65.2% during 2011 to 2013, according to a bookrunner premarketing report.
However, the company still had to cut the deal size by a third from the original target of $300 million to $200 million, due to market volatility and investors’ risk-avoiding sentiment.
The Hong Kong stock market has been sluggish and the IPO sentiment jittery this year. As of June 5, there have been 35 IPOs and 65% of them have traded under the IPO prices. Meanwhile, Chinese pork company WH Group pulled its jumbo IPO of up to $1.9 billion.
Some investors turn a cold shoulder to the CCSC deal because they do not want to take risks in such a market. “There are already some brokerage stocks in the market with a track record; I can buy those if I want some in the portfolio. I don’t need to take more risks [by buying IPOs],” said a fund manager based in Hong Kong.
Sources close to the company told FinanceAsia that investors also have concerns about the brokerage’s scale.
“They are more interested in deals [of the size of] $500 million to $1 billion, which can offer a better liquidity after listing,” said one of the sources.
Eight banks are helping in the CCSC deal, including BOCI, BoCom, CCBI, DBS, Galaxy Securities International, HSBC, ICBCI and Qilu Securities.
