Everbright Securities premarkets $1bn HK listing

The Shanghai-based brokerage gauges market demand for a Hong Kong share sale that has been delayed since the beginning of the year.

Everbright Securities began investor education for a long-awaited H-share listing on Monday, bringing an end to an almost one-month dry spell in Hong Kong’s equity market.

The Shanghai-headquartered securities firm will conduct premarketing sessions for a week before officially kicking off the $1 billion share sale on August 8, according to a source familiar with the situation.

The timetable for the deal is still tentative, but bankers hope the institutional bookbuild for Everbright Securities' share sale will take place between August 8 and August 11. The shares are expected to begin trading on August 18 in Hong Kong. 

China Everbright Capital, UBS and Bank of America Merrill Lynch are joint sponsors of the Hong Kong share sale.

Investment bankers will closely monitor market reception for the deal, hoping to gauge investor confidence with a heavy pipeline of deals expected to come to the market after the summer break. Among these deals is Postal Savings Bank of China’s planned $8 billion initial public offering.

Hong Kong’s equity capital market has been largely muted since China Logistics Property priced its $433 million initial public offering in early July.

About time

Everbright Securities, the brokerage arm of state-owned Everbright Group, had planned to launch the Hong Kong share sale as early as last year after record earnings led to a huge rally in the price of its A-shares.

Everbright Securities’ 2015 net income increased 2.7 times to Rmb7.7 billion ($1.2 billion) from a year earlier, largely the result of increased brokerage commission and bumper revenues from margin financing. The firm’s shares in Shanghai reached a record level of Rmb35 in late April.

That encouraged the firm to consider listing in Hong Kong. Despite a significant cooldown of market sentiment in the second half of last year, Everbright Securities filed a listing application with the Hong Kong stock exchange in December 2015, aiming to float its shares by the end of June. At that time the mainland-listed stock was trading around the Rmb25 mark.

But the plan soon stalled. Global stock markets turned volatile following Beijing’s implementation and subsequent suspension of the stock market circuit-breaker mechanism. Market confidence in Chinese stocks has also been hit by news that the world’s second-largest economy recorded its slowest economic growth in 25 years  last year.

Everbright Securities shares were trading at around Rmb16.64 in Shanghai on Monday afternoon, meaning the stock has lost more than half of its market value since the April peak last year.

Bankers say Everbright Securities has missed the best window to launch the share sale and is unlikely the replicate the overwhelming response from the likes of GF Securities and Huatai Securities last year.

As a result some investors expect the company will rely on Chinese cornerstone investors to provide the foundation for the share sale. Recent equity offerings by state-backed Orient Securities and CDB Leasing allocated 41% and 80% of their shares respectively to cornerstone investors.

But while the core business of Everbright Securities is similar to other mainland brokerage firms, one selling point of the deal is the capital injection through the potential spinoff of its Hong Kong operations.

According to the company’s prospectus, Everbright Securities plans to sell part of its shareholding in its Hong Kong subsidiaries Everbright Securities International and Sun Hung Kai Financial through a combined listing in Hong Kong by the end of June 2018.

The spinoff was part of the undertaking agreed when Everbright Securities purchased a 70% stake in Hong Kong-based Sun Hun Kai Financial for HK$4.1 billion ($528 million) in June last year.

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