Hong Kong-listed shares in Citic Securities, China’s biggest publicly traded brokerage, ended unchanged yesterday after tumbling more than 10% during their first day of trading, reflecting weak demand amid the global market volatility.
Citic’s stock price dropped to HK$11.90 ($1.5) at one point in the morning trading session yesterday, 10.5% lower than the offer price of HK$13.30, but regained its losses in the afternoon as the Hang Seng Index ended up by 5.7%. However, some upbeat specialists described the first-day performance as “good”.
“Most blue-chip Chinese companies have fallen 20% to 30% so far this year. It’s good enough that Citic has managed to get the deal done. It has attracted many long-term investors who will shrug off the one-day performance,” said Ben Kwong, chief operating officer at KGI Asia. “The appetite for new equities will remain weak until the end of this year."
China’s biggest investment bank by net assets raised HK$13.2 billion ($1.7 billion) in the largest IPO from the financial sector in Asia-Pacific so far this year. To ensure a decent secondary market performance, the brokerage set the IPO price at HK$13.30 each, slightly above the bottom of the indicated range of HK$12.84 to HK$15.20. It sold 995.3 million shares.
The final price values the company at a 2011 price-to-book (P/B) multiple of 1.28 times and at a 2011 price-to-earnings ratio of 8.95 times.
Citic hit the market at a time when several issuers had called off their Hong Kong listings amid concerns about market volatility and the escalating debt crisis in Europe. During the firm’s bookbuilding, Sany Heavy Industry, a Chinese machinery maker, postponed its planned Hong Kong IPO of up to $3.3 billion, while its smaller domestic rival XCMG Construction Machinery delayed the launch of its offering twice and has also reduced the planned size of the deal.
“Right now the market condition is not very good, but I’m satisfied the IPO got completed,” said Wang Dongming, chairman of Citic Securities, when speaking to reporters at a listing ceremony at the Hong Kong stock exchange yesterday.
The Hong Kong listing of Citic Securities, the first company that offers international investors direct access to China’s brokerage industry, shows that Chinese regulators are determined to clean up the industry.
Critics blame the country’s stockbrokers for the continued under-development of China’s capital markets. Without dynamic equity and bond markets, the nation has around $3 trillion of private savings sitting idle in domestic deposit accounts, while thousands of small and medium-size enterprises (SMEs) are starved of capital.
Under China’s tight fiscal policy, many SMEs have been forced to borrow from underground and unregulated lenders, a trend that signals “the financial markets in China have become increasingly unstable and that the risk of a hard landing is rising”, according to analysts at BoA Merrill Lynch.
The deal is the biggest IPO from the financial sector in Asia-Pacific and the third biggest in Hong Kong so far this year, following Prada’s $2.4 billion offering and Shanghai Pharmaceutical’s $2 billion IPO in the city.
The company hired only Chinese banks as bookrunners, with foreign banks BoA Merrill, CLSA, HSBC and Morgan Stanley only acting as international coordinators.