GF Securities has raised HK$27.9 billion ($3.6 billion) after pricing its Hong Kong initial public offering at the very top end of the indicative price range on Tuesday.
China’s fourth-largest broker by assets has executed the largest listing in Asia so far this year and could raise upto $4.1 billion post greenshoe.
The deal has generated strong demand from both institutional and retail investors who are taking the opportunity to buy into the soaring A-share market.
The institutional book was covered on the first day after the deal launch and multiple times covered throughout the price range before pricing. The book attracted participation from several hundred accounts all over the world including long-only, hedge funds, mainland QDII investors, existing shareholders and private banking accounts, according to one source close to the deal.
Among the investors, Hong Kong-listed property investment firm China Oceanwide subscribed to $100 million worth of GF shares. In a statement the company said it hoped the subscription would maximise investment return by "capitalising on opportunities arising from the PRC’s [China's] economic growth."
The retail tranche was 180 times covered by 10 million investors, triggering the clawback mechanism. This boosted the retail slice of the deal from 5% to 20%, the cap set for the tranche.
The benchmark Shanghai Stock Exchange Composite Index has surged 36% during the past four months, while the A shares of major brokers Citic Securities and Haitong Securities have jumped 95% and 81%, respectively, thanks to rising trading volumes and brisk margin financing business.
That explains why GF Securities generated strong interest from institutional investors before the roadshow and secured orders of $1.87 billion from 18 cornerstone investors.
The Guangzhou-based broker sold 1.48 billion new shares or 20% of its enlarged capital at an indicative price range of HK$15.65–HK$18.85 each. Cornerstone investors took around 52% of the total shares.
GF Securities' shares have offered overseas investors a rare chance to buy into the red-hot A-share market at an attractive valuation. In addition to GF Securities, three sizable mainland brokers have listed in Hong Kong; Citic Securities, Haitong Securities and China Galaxy Securities.
The final price at HK$18.85 represents a discount of 45% to GF Securities’ A-share close at Rmb26.68 in Shenzhen on Monday.
The price also translates into a 2015 forecast price-to-book of 1.6 for a discount of 26.2% to 38.5% to 2015 P/B of 2.59 for Citic and 2.17 for Haitong, based on their Monday closing in Hong Kong.
The growth potential of GF Securities also underpinned demand. The broker, the leader by IPO underwriting amount in 2014 and the largest asset management platform in the mainland securities industry, recorded an increase in total revenue and net profits of 70% and 78.6% to Rmb16.2 billion and Rmb5 billion, respectively, according to its annual report.
GF Securities’ IPO comes at a time when Beijing is opening up its capital markets.
On Friday, the China Securities Regulatory Commission announced it would allow Chinese mutual funds to buy HK-listed shares through the Stock Connect programme without a QDII license requirement.
Mainland brokers have posted impressive profits recently, further strengthening investor confidence in the sector. The largest, Citic Securities, last week posted a 116.2% increase in 2014 net profits to Rmb11.3 billion.
The H-shares of GF Securities will list on the main board on April 10.
GF Capital (Hong Kong) and Goldman Sachs were joint sponsors of the GF Securities IPO, while Bank of America Merrill Lynch, BoCom International, Deutsche Bank, GF Securities (Hong Kong), Goldman Sachs and Morgan Stanley were joint global coordinators. The six banks were also joint bookrunners with ABC International, CCB International, China Merchants Securities, China Securities International, CIMB, Guosen Securities, HSBC, Huatai Financial, ICBC International, Industrial Securities Hong Kong and Sun Hung Kai Financial.
This item was updated 6:27pm (Hong Kong time) on March 31 to reflect the make-up of the book.