Investment banks and international investors are lining up to take part in Citic Securities’ Hong Kong share sale, which analysts say will allow China’s biggest brokerage to raise $3 billion, making the deal a promising candidate for Hong Kong’s largest IPO in 2011.
“The brokerage firm has received many proposals from different banks hoping to get involved in the deal,” said a source. “There were also many institutional investors that approached the firm as soon as its shares suspended trading in Shanghai last month.”
Citic Securities will submit its listing application to the Hong Kong stock exchange by the end of May or early June, and the firm expects to kick-off the roadshow in the third quarter of this year, according to the source.
Among all the candidate banks, BOC International, CCB International and the brokerage’s own investment banking unit Citic Securities International, are likely to be on the shortlist, according to other sources, though the list of banks has yet to be finalised.
There are many reasons for banks and investors to be enthusiastic about the deal. Although there have been IPOs by the Hong Kong subsidiaries of mainland securities firms in the past, Citic Securities is the first company to give investors direct access to China’s brokerage industry. Given the size of the offering, and Citic’s market position, the deal is set to be one of Hong Kong’s most high-profile IPOs.
Shanghai-listed Citic Securities, which tops the list of 107 securities companies in China and spearheads the country’s investment banking market jointly with China International Capital Corporation (CICC), has said it plans to list 10% of its stake, or 1.27 billion shares, in Hong Kong. Z-Ben Advisors, an investment consulting firm, says the company could raise Rmb20 billion ($3 billion) in the deal.
“The fact that [Citic], unlike Guotai Jun’an and Shenyin Wanguo, has opted for a Hong Kong IPO for its mainland parent company instead of issuing the shares of its Hong Kong subsidiary might be a further indicator of size,” Z-Ben said in a report. “After all, no subsidiary would be able to attract Hong Kong investors in the same way as Citic Securities.”
Citic Securities stirred the market last year when it announced it would buy a stake in CLSA, a Hong Kong-based brokerage, to support the development of its offshore business. The acquisition was estimated at around Rmb40 billion, so a Hong Kong IPO would help to fund that expensive buyout.
Citic Securities’ move followed its smaller domestic competitor Haitong Securities, which bought a 52.86% stake in Hong Kong’s Tai Fook Securities for $235 million in 2009. Chinese names appear on the world’s top-10 list of banks and insurance companies, and the country’s brokerage firms also hope to become world-leaders.
Guotai Junan International, the Hong Kong unit of Shanghai-based Guotai Junan Securities, raised $226 million from a Hong Kong IPO last July.
Citic Securities’ Shanghai shares have been trading at an average price of Rmb13.66 during the past three months. The stock is quoted at 17 times the company’s 2011 forecast earnings.
