Shanghai-based Everbright Securities filed for a Hong Kong share sale with the city’s stock exchange operator late on Tuesday in the hope of opening up a new platform for future fundraising.
Based on Everbright Securities’s current market capitalisation of Rmb88 billion ($13.7 billion), the broker could raise as much as $2.75 billion, assuming it sells 20% of its share capital, just as Huatai Securities and GF Securities did earlier this year.
Everbright Securities's share sale has been long-anticipated by bankers and investors alike.
“It has become clear that Everbright Securities and other brokerage houses that are not currently listed in Hong Kong will seek to do so over the next few years,” one investment banker in Hong Kong told FinanceAsia. “They have been [lagging] behind the likes of Haitong Securities and Citic Securities, which have already seen their shares traded in Hong Kong for a few years.”
Citic Securities was the first mainland brokerage house to sell shares in Hong Kong, raising $1.7 billion in 2011 nine years after its Shanghai debut. That was followed by Haitong Securities which raised the same amount from a Hong Kong share sale a year later.
Platform
A second banker told FinanceAsia that in addition to the proceeds directly raised from the sale of shares, an international listing offered mainland brokerages access to various other fundraising channels.
“Listing in Hong Kong is the first step for them to raise bigger capital in the future,” he said.
For instance, Haitong Securities has conducted five follow-on offerings since it listed in Hong Kong in 2012. That includes a $4.3 billion H-share private placement executed in December last year, which was 2.3 times bigger than its initial share sale.
Citic Securities and China Galaxy Securities have also tapped extra funding via the Hong Kong market, which exceeds their first deals.
Listing in Hong Kong also makes it easier for companies to obtain credit ratings from international rating agencies, giving them better access to international bond markets.
In that respect, Haitong Securities has been a leader with a $900 million five-year bullet in 2013 and another, similar $670 million deal in April this year.
Chinese securities firms are vying for new funding because the brokerage business has become more capital-intensive since the country’s securities regulator allowed investors to buy shares using borrowed money in 2012.
Margin financing has boosted Chinese market liquidity and become a key revenue contributor for Chinese brokers, prompting them to seek more capital to cater for the increasing demand.
Hong Kong exposure
Everbright Securities has followed the paths of its main rivals to gain access to the Hong Kong market by acquiring local brokers, having bought a 70% stake in June in Sun Hung Kai Financial, the largest local securities firm by assets.
Gao Yunlong, vice chairman of China Everbright Group, at the time said the acquisition reflected Everbright Securities’s internationalisation strategy to achieve the greater cross-border integration.
Haitong Securities and Citic Securities have also expanded into Hong Kong through acquisitions. In 2009 Haitong Securities bought a controlling 53% stake in Hong Kong-based Taifook Securities from NWS Holdings, while Citic Securities acquired Hong Kong-based broker CLSA from France’s Credit Agricole in 2012.
According to Everbright Securities’s preliminary prospectus, it intends to spin off its Hong Kong businesses – Sun Hung Kai Financial and China Everbright Securities International – in a separate Hong Kong listing in around 2017.
To help make that happen Everbright Securities may have further reason to seek to list in Hong Kong now.
Joint sponsors for Everbright Securities’s Hong Kong share sale are China Everbright Capital, UBS, and Bank of America Merrill Lynch.
