Orient sets price for $1.6b Shanghai IPO

The institutional book was over 80 times covered on hopes China's financial reforms will boost brokers' business.

Broker Orient Securities has set the price for its Rmb10.3 billion ($1.6 billion) Shanghai listing, China's biggest A-share initial public offering since 2011.

The price of Orient shares was set at Rmb10.03 per share, which values the whole company at  Rmb53 billion. 

The deal comes as Beijing hosts the annual plenary session of the National People's Congress which is setting out China's plans for reforming financial markets. Investors flocked to Orient Securities' IPO because they believe the financial reforms, such as speeding up China's IPO approvals, will ultimately boost brokers' revenues.

The benchmark Shanghai Stock Exchange Composite Index has surged 31% during the past four months, while the A shares of big brokers like Citic Securities and Haitong Securities have jumped 91% and 76%, respectively on rising trading volumes and brisk margin financing business.

Broker stocks fell on Monday after the sector’s regulator China Securities Regulatory Commission on Friday said it is considering issuing brokerage licenses to banks which will generate intense competition. However, no investors withdrew their orders after the news and the book was already covered, according to a person familiar with the deal.

Shanghai-based Orient Securities is selling up to 1 billion new shares or 18.9% of its share capital. It plans to sell 70% of the shares to institutional investors and 30% to retail investors. The retail book will open on Wednesday (March 11) and the subscription result will be announced on March 16.

The company hopes to replenish its capital with the funds it raises.

The deal has attracted strong demand from 237 accounts, making the institutional book around 80 times covered.

The company has decided to allocate the shares to 139 accounts, among which 55% are fund managers, 29.5% are insurers and 14% are corporate. There are also two professional individual investors in the final book.

“Investors like the deal also because of its bulky size, which means they have a bigger chance to get the shares,” said a source familiar with the deal.

The IPO of Orient Securities promises to be the largest A-share listing since Sinohydro Group raised Rmb13.5 billion in September 2011.

Orient Securities launched a securities joint venture with Citigroup Inc. in 2012.  

Valuation

The price of Orient shares was set at Rmb10.03, representing a price-to-earnings ratio of 22.98 times its 2014 profit on a diluted basis.

Peers Huatai Securities and GF Securities were trading at a 2014 P/E multiple of 26.3 and 27.36 times, respectively, which means Orient’s new shares have a 12.6% to 16% discount to peers.

“The discount is not big, given that IPO shares in the mainland market usually rise more than 30%,” said a banker away from the Orient listing.

Shares of Guosen Securities, which listed in Shanghai in December, have surged 238% since listing.

Orient Securities looks undervalued according to a report by local securities firm Founder Securities, which estimated its fair value at Rmb20.71 a share, suggesting the shares could have an upside of 106%.

Orient Securities recorded an revenue of Rmb5.5 billion in 2014. Its net profit more than doubled to Rmb2.34 billion in 2014 from a year earlier. 

Everbright Securities is sole bookrunner on the deal.

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