China has made efforts to ease controls on its capital markets in a bid to encourage greater participation from private investors both in China and overseas, and this loosening of restrictions is creating opportunities for the country’s securities firms.
Everbright Securities is one broker relishing the prospect of more liquidity. China’s leading securities dealer, which is controlled by state-owned financial conglomerate China Everbright Group, is seeking to raise Rmb7 billion ($1.1 billion) in a private placement in Shanghai to replenish its working capital and raise funds to help expand its business, it said in a filing to the city’s stock exchange yesterday.
It is the broker’s first time taping the A-share market since its listing in 2009, when the firm raised Rmb11 billion ($1.61 billion). It is set to be the second-biggest private placement in the A-share market this year. Bank of Communications (BoCom), China’s fifth-largest lender by assets, announced in March that it would raise Rmb56.6 billion through a private placement with a dozen institutional investors in Shanghai and Hong Kong.
Everbright Securities said it plans to offer 600 million new A-shares at a minimum of Rmb11.74 each. The price represents a 12.7% discount to its closing price of Rmb13.45 last Tuesday (July 24). Trading in the broker’s shares resumed yesterday, closing down by 5.65% at Rmb12.69.
There are no more than 10 investors involved in the deal, one of which will be China Everbright Limited, the broker’s second-biggest shareholder, which has agreed to purchase 20 million shares. Shareholders have already approved the fund-raising plan, though it is still subject to regulatory approval.
In the first half of this year, Everbright Securities made a net profit of Rmb829 million and Rmb2.1 billion in revenue, down by 26% and 20%, respectively, year-on-year, the broker said in a separate statement. Analysts expect most Chinese stockbrokers will post weak results for the first half of this year due to the sluggish markets and limited sources of income.
Some analysts are predicting that the A-share market will rally by the end of 2012 as Beijng’s monetary easing boosts investor confidence and helps China’s slowing economy to bottom out by the third quarter.
China’s manufacturing purchasing managers’ index (PMI) for July stood at 51 after seasonal adjustment, slightly higher than the 50.7 in June. Given the seasonal weakness of July’s reading historically, the PMI shows “encouraging signs that growth momentum has stabilised and [is] potentially rebounding,” said Helen Qiao, chief greater China economist at Morgan Stanley, in a report.
With more aggressive rhetoric from China’s top leadership in support of further policy easing, Qiao forecasts more counter-cyclical measures to reinforce economic recovery in the form of infrastructure investment, accelerated construction of social housing and extension of structural tax reforms to more regions.