China brings its 'A' Game with $1.6b Orient IPO

Broker Orient Securities bumper IPO, the largest in roughly three years, suggests China's securities regulator is ready to loosen up after a lengthy overhaul of domestic markets.

Broker Orient Securities is looking to raise Rmb10 billion ($1.6 billion) through a Shanghai listing, China's biggest A-share initial public offering in roughly three years.

The company is among 24 who received clearance on Monday from the China Securities Regulatory Commission to begin work on potential listings.

Shanghai-based Orient Securities is selling up to 1 billion new shares or 18.9% of its share capital. It will start receiving orders from investors on March 5 and plans to set its IPO price on March 9, according to a prospectus released yesterday.

Everbright Securities is sole sponsor on the IPO, which promises to be the largest A-share listing since Sinohydro Group raised Rmb13.5 billion in September 2011. Orient Securities hopes to replenish its capital with the funds it raises.

A-share IPOs have averaged Rmb647 million in the last five months, according to local data provider Eastmoney. So with Orient Securities now coming to the fore, it seems the CSRC is ready to open up the market to jumbo listings.

The Chinese regulator has been trying to conduct IPO reforms since April 2012, including a two-year moratorium for IPOs and curbs on size, to clean up the market and make it healthier.

“The regulator believes bulky fundraisings will soak up too much capital from the secondary market and put pressure on the stock market,” said a Beijing-based banker who advised on an IPO recently that was halved due to CSRC pressure.

Orient Securities’ IPO comes at a time when mainland China’s stock markets are rallying and local securities houses are valued higher due to brisk broking business.

Shanghai’s stock market has surged 31% since November, while the A shares of big brokers like Citic Securities and Haitong Securities have jumped 91% and 76%, respectively.

More broker listings in the pipeline will benefit from the stock market's momentum. Galaxy Securities, First Capital Securities, Zheshang Securities, and Huaan Securities have applied to the CSRC for an A-share listing and will come to the market once they get the green light.

IPO ambitions

Orient Securities has been trying to list since 2003, when it became a limited company.

However, the company’s performance has been unstable and it couldn’t meet the Shanghai Stock Exchange's financial requirement that issuers need to make a profit of at least Rmb30 million in the three years immediately before a listing.

In 2011, Orient Securities managed to meet the financial requirement and applied for a listing. But the regulator stopped IPOs in an overhaul of the market and Orient Securities was forced to postpone again.

Founded in 1998, Orient Securities has developed businesses across investment banking, trading, asset management, futures, margin finance, and alternative investment.

Such has been the mainland Chinese market's recent bull run, powered in part by lucrative margin finance, that the company is forecasting net profit growth of 80% to 140% year-on-year for the first quarter.  

State-owned Shenergy Group holds a 38% stake in Orient Securities and is its largest shareholder. Shenergy promised that it will sell less than 5% of Orient's stock each year for two years once the IPO lock-up period of 36 months ends.

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