Orient Securities launched the roadshow for its HK$8.95 billion ($1.16 billion) H-share sale on Monday, kicking off what could be a busy 10 days for new Hong Kong listings.
The Shanghai-headquartered brokerage's cross listing is likely to be followed by an initial public offering from CDB Leasing, which is tipped to launch a transaction as early as Tuesday, according to bankers.
Meanwhile, China Logistics Property and Greentown Service Group, the property management arm of Greentown China Holdings, are also both meeting with investors ahead of the official launch of their respective IPOs, which together are expected to raise as much as $700 million, bankers said.
Firms are rushing ahead with their share sale plans before quarter-end because the financial information submitted is good up to the end of last year, which means they would need to update their documents if they launched after the market close on June 30. Hong Kong listing rules stipulate that the last reported financial period must be within six months of the launch date.
What's more, it would probably take an additional month or two to refile financial updates because of the extra due diligence work required, bankers familiar with the IPO process told FinanceAsia.
In the event of a deteriorating quarterly performance, firms might also want to accelerate their listing plans to avoid having to disclose financial information that might lower their valuations.
The H-share offering of Orient Securities comes 15 months after it raised Rmb10 billion ($1.52 billion) by floating its shares on the Shanghai Stock Exchange, underscoring the massive demand for fresh funding as share trading and margin financing has taken off in China.
Such cash calls were started by the country's larger brokers including Haitong Securities and Citic Securities, which have both raised billions of dollars from their IPOs and follow-on share sales since 2012. The ensuing domino effect has seen smaller brokerages follow suit in order to stay competitive.
Capital-raising activities heightened in the second quarter last year when six mainland brokerages raised a whopping $19.4 billion from either IPOs or private share placements. Smaller firms such as HTSC, GF Securities, and Guolian Securities were all able to raise cash as Chinese share prices soared.
They have also been raising cash at a time when the Chinese stock market has become increasingly leveraged. Margin loans outstanding for the Shanghai Stock Exchange peaked at Rmb2.2 billion in the middle of last year, a nine-fold jump on the previous year.
The more leveraged stock market investors are, the stronger the balance sheets that securities firms need to lend on margin.
Besides Orient Securities, Everbright Securities and China Merchants Securities are also planning share sales in Hong Kong later this year.
Orient Securities will be listing in Hong Kong with the official name of DFZQ, an acronym of Dong Fang Zheng Quan, the Chinese name of the broker. This is meant to avoid confusion with Orient Securities International, a local brokerage house listed on the Growth Enterprise Market of the Hong Kong Stock Exchange.
In the same way Greentown Service Group, one the other companies with a potential Hong Kong IPO in the works, is not to be confused with state-owned Greenland Group, which quite separately is seen potentially listing its Chinese hotel assets in Singapore.
Orient Securities will conduct a management roadshow for the Reg S/144A offering until 28 June. The Hong Kong public offering is scheduled for June 22 to June 27 and the shares are expected to start trading on July 8.
The offering comprises 957 million shares pitched at HK$7.85 to HK$9.35 per share. There is a standard 15% over-allotment option, which could potentially increase the deal to $1.33 billion assuming top-end pricing.
The use of cornerstone investment as groundwork for jumbo equity offerings has proved popular among Chinese issuers and Orient Securities is no different. A total of 10 cornerstone investors, all Chinese institutions, will pay $474 million to subscribe for 41% of the deal, assuming top-end pricing, or 49% if the transaction is priced at the bottom of the indicative range.
The full list of cornerstone investors are Hung Jia Finance ($100 million), Bocom International ($99 million), Great Boom ($50 million), Pinpoint Asset Management ($50 million), China Eastern Airlines ($30 million), Shanghai Electric ($30 million), Shanghai Industrial Investment ($30 million), Value Partners ($30 million), Yunnan Energy ($30 million), and China Minsheng Investment ($25 million).
In a desperate rush for fresh capital, Orient Securities will be selling shares in Hong Kong at roughly a 54% to 61% price discount to its Shanghai stocks.
According to a banker familiar with the transaction, price guidance of the H-share offering equates to 0.95 times to 1.1 times book value on a forward basis, and 1.01 times to 1.2 times book as of the end of last year.
By comparison, shares of Orient Securities trade at 2.41 times forward price-to-book and 2.52 times book value last year in Shanghai.
Citigroup, Goldman Sachs and Nomura are joint sponsors of the transaction. They are also joint global coordinators with Bocom International.