MS Morgan Stanley

HONG KONG—China Merchants Securities Co. has cut the expected size of its Hong Kong initial public offering by more than half due to poor market conditions and lower valuations of comparable companies in its sector.

The Shenzhen-based brokerage filed for its IPO with Hong Kong's stock exchange on Friday. Although financial terms of the IPO weren't disclosed, people familiar with the situation said the company is now looking to raise less than half of the previously reported $4 billion to $5 billion amount.

In June, The Wall Street Journal reported that China Merchants planned to raise up to $5 billion in a Hong Kong IPO, which was initially planned to launch in the fourth quarter of 2015. However, the company's IPO plans were put in motion before China's stock market plummeted last summer. Valuations for comparable companies have subsequently fallen, which forced the company to rethink how much it would raise from its offer, the people said.

China Merchants has yet to set a concrete amount that it plans to raise, one of the people said.

Peer brokerages Huatai Securities Co. and GF Securities Co. both raised more than they expected in Hong Kong IPOs when the market was booming in the first half of 2015. They are now trading below their IPO prices.

China Merchants plans to use part of the IPO's proceeds to develop its brokerage and wealth-management business, which includes expanding its margin-financing and securities-lending units, according to the Friday filing. It will also contribute additional capital to China Merchants Futures, its futures subsidiary, as well as expanding its overseas business.

In the first quarter, the company's net profit slid more than 60% from a year earlier.

China Merchants, J.P. Morgan Chase & Co. and Morgan Stanley are working on the offering.

China Merchants is one of at least three large Chinese securities firms looking to raise money in Hong Kong this year. Others include Orient Securities Co., Citigroup Inc.'s China securities joint-venture partner, which is looking to raise $1 billion or more in the coming months, as well as Everbright Securities Co., one of mainland China's largest brokerages.

Write to Kane Wu at Kane.Wu@wsj.com

(END) Dow Jones Newswires

May 16, 2016 03:35 ET (07:35 GMT)

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