Haitong Securities, China’s second-biggest brokerage in terms of total and net assets, has raised HK$13 billion ($1.67 billion) from its initial public offering after fixing the price below the mid-point of the range at HK$10.60 a share.
The final price is equal to the price guidance that went out the day before pricing, sources said. The IPO was postponed in December due to volatile market conditions and re-launched on an accelerated basis on Tuesday last week with the institutional and retail tranches running parallel to one another. The institutional portion of the deal closed a day early on Thursday and the final price was set after the retail offering closed at noon Hong Kong time on Friday.
The shares were marketed in a range between HK$10.48 and HK$11.18 each, which could have allowed the company to raise as much as $1.77 billion at the top end.
Excluding the cornerstone portion, the 95% institutional tranche was more than three times covered, while the 5% retail tranche was just under three times covered, one source said.
Haitong had signed up 11 cornerstones prior to launch, as it needed to ensure the deal was a success this time around. Together they bought a combined $577 million worth of shares, or about 36% of the institutional tranche at the final price. There was also significant demand from anchor investors (which, contrary to the cornerstones, are not subject to a six-month lockup) and, according to people involved in the offering, the base deal was already about two-thirds covered by cornerstones and anchor investors combined when the order books opened.
Hong Kong-based private equity fund PAG contributed the biggest cornerstone investment with $300 million. Other cornerstones included DE Shaw, SBI Holdings, Dah Sing Bank and Oman Investment Fund. In December, Haitong had only two cornerstone investors, which had agreed to buy no more than 15% of the deal.
About 200 institutional investors came into the deal this time. The order book was solid, with a number of long-only investors, as well as domestic Chinese money, hedge funds and some private banking interest, the source said. However, the demand was price sensitive.
Another source added that the deal was allocated heavily towards long-only investors. The demand came predominantly from Asia, but there were some European orders as well.
The final price values the Chinese brokerage at a 2012 price-to-book (P/B) multiple of 1.31. That puts it at a discount versus Citic Securities’ Hong Kong-listed shares, which are trading at a 2012 P/B ratio of about 1.6 times, the first source said.
The price represented a discount of about 14.4% versus Haitong’s A-shares, which closed at Rmb10.09 (about HK$12.39 after adjusting for the exchange rate) last Thursday.
The offering was made up of 1.229 billion new H-shares, or 13% of the enlarged share capital. A 15% overallotment option may increase the total deal size to as much as $1.9 billion, if exercised in full. The number of shares is the same as in the December offering, which was marketed at a price between HK$9.38 and HK$10.58 and slated to raise between $1.48 billion and $1.67 billion. The new price range reflected the increase in the A-share price since then.
At $1.67 billion, Haitong is the biggest IPO in Hong Kong so far this year, ahead of Canada’s Sunshine Oilsands that raised $580 million in February, and the first big deal to test the Hong Kong IPO market in the second quarter. It is also the largest new listing globally this year, exceeding Dutch cable network provider Ziggo’s $1.22 billion listing in Amsterdam in March, Dealogic data show.
However, it trails the Hong Kong IPO by larger Chinese brokerage firm Citic Securities in September last year, which raised $1.8 billion, including a partial exercise of its overallotment option.
Headquartered in Shanghai, Haitong has branches across 27 provinces and 113 cities in China, and as of September 30 it operated 13 branches in Hong Kong and Macau through its Hong Kong-listed subsidiary, Haitong International Securities. Haitong was established in 1988 and listed on the Shanghai Stock Exchange in 2007. It is the second company, after Citic Securities, to offer international investors direct access to China’s brokerage sector.
Citi, Credit Suisse, Deutsche Bank, Haitong International, J.P. Morgan and UBS were joint global coordinators and joint bookrunners for the IPO. Bocom International, HSBC, ICBC International, Nomura and Standard Chartered were also joint bookrunners. The line-up was roughly the same as in December, with the exception that UBS was elevated to a joint global coordinator and Bocom International and ICBCI were added as bookrunners.
Since the initial Hong Kong offering was postponed in mid-December, Haitong’s Shanghai-listed A-shares have climbed about 25%, which is almost in line with the gain in Citic Securities’ Shanghai-listed A-shares. The Shanghai Stock Exchange Composite Index has gained about 5% during this same period, while Hong Kong’s Hang Seng Index is up 13%.
Haitong is scheduled to start trading on Friday (April 27).
