Beijing-headquartered China Securities is set to extend the streak of Hong Kong listings from mainland brokerages this year as it begins pre-deal investor education for an initial public offering on Monday.
Sources say the firm expects to raise $1 billion from the share sale, which would make it the fourth billion-dollar Hong Kong IPO from a Chinese securities firm this year.
It comes hot on the heels of China Merchants Securities, Everbright Securities and Orient Securities, which have raised a combined $3.5 billion from H-share offerings since July.
Meanwhile, China Industrial Securities also raised HK$1.39 billion ($180 million) from an IPO on the Growth Enterprise Market, Hong Kong’s second board.
The streak of deals from mainland securities firms underscores how intense the competition is for fresh capital. In order to raise funds quickly in order to catch up with their competitors, a trend has emerged for securities firms to tap offshore equity financing to avoid long queue of mainland IPOs.
For China Securities, the upcoming IPO is arguably more important because it gives the firm access to the large pool of funding in the public market. By contrast, the other four brokerages that did H-share offerings this year had already listed in Shanghai, and therefore saw the Hong Kong platform only as an alternative source of capital for them.
China Securities will hope that its deal will not be affected by so-called investor fatigue on financial IPOs this year. The fact that these financial deals have largely underperformed the market could weigh on demand, particularly from retail investors.
It also remains to be seen whether the securities firm will lean on a long list of cornerstone investors, as most of the financial IPOs did this year, to help the deal cross the finishing line.
Although China Securities is considered one of the country’s top-tier securities firms, it is smaller than most of its Hong Kong-listed peers in terms of asset size and profitability.
Last year, the firm ranked 10th in sales and net profit among the 125 mainland-registered securities firms, according to Securities Association of China. It ranked 11th in total asset value and 14th in net asset value, putting it at a similar scale to Everbright Securities.
China Securities counts wealth management as its biggest income source, supported by its extensive network of 225 securities branches and 20 futures branches across the country. Last year, the firm generated 56% of its sales from the business.
However, investment banking stood out as the bright spot in the first half of this year amid a sharp decline in wealth management revenue. It was able to distinguish itself from some of the onshore-only securities firms by providing offshore investment banking solutions through its Hong Kong subsidiary, China Securities (International).
According to Dealogic, China Securities ranks 7th in Asia ex-Japan equity dealmaking year-to-date, ahead of some bigger players including Haitong Securities and Guotai Junan Securities.
China Securities is 45%-owned by the Beijing government and 40%-owned by Central Huijin, China’s state investment fund. Citic Securities, the country’s largest securities firm, is the third largest shareholder with a 7% stake.
One source familiar with the situation said China Securities will launch the IPO in the week of November 28 and aims to list on December 9.
China Securities International, UBS and ABC International are joint sponsors of the IPO.