By Prudence Ho
China's stock rally produced a big winner Tuesday when the
country's fourth-biggest brokerage raised US$3.6 billion in Asia's
largest initial public offering.
Shares of GF Securities were priced at the high end of the
expected range as investors flocked to companies seen to benefit
from the bull market. The deal made Hong Kong the world's No. 1
destination for IPOs this year.
The IPO is the second-largest new listing globally in 2015,
after the US$4.8 billion IPO of Spain's airport operator Aena SA in
Madrid in February.
"The brokerage industry in China is still in developing stage
with room to grow via acquisitions and new products," said Ben
Kwong, associate director of Taiwanese securities firm KGI Asia
Ltd. The other attraction for investors, Mr. Kwong said, is the
trading link between Shanghai and Hong Kong, and a second link that
will bring in the highflying Shenzhen exchange later this year.
The Shanghai stock market rose 20% in the first quarter and is
at a seven-year high. This has led to an explosion of trading and
margin lending, boosting profits at brokerages like GF Securities.
The Shenzhen Stock Exchange, which is full of lesser-known but
fast-growing technology and pharmaceutical companies, is up 40.8%
and ranks as the world's top major index this year.
Trading volume in China has grown fivefold in the past 12 months
and margin lending hit a record 1.48 trillion yuan as of Monday, up
from 1.16 trillion yuan at the end of February. China has roughly
120 brokerages but the top 10 had 40.9% market share in 2013.
The brokerages are quickly cashing in on the bull market. Orient
Securities Co., a joint-venture with Citigroup Inc. in China raised
US$1.6 billion in a Shanghai IPO in early March. It will be
followed by a wave of brokerages listing in Hong Kong or holding
private placements, which together could raise more than $10
billion. Among them is Citic Securities, China's largest brokerage,
which will raise about US$5.6 billion in a private placement to
boost margin financing.
Hong Kong, which was the top global IPO venue from 2009 to 2011,
didn't see a large IPO for the first two months of the year.
Business picked up after the US$751 million IPO by Hong Kong
broadband operator HKBN Ltd. , in which private-equity CVC Capital
Partners has a stake, and a US$951 million IPO by Shanghai-listed
car-window maker Fuyao Glass Industry Group in March. Shares of
Fuyao Glass on Tuesday closed 13% higher than their IPO price on
their trading debut.
GF Securities, which will list in Hong Kong on April 10, sold
1.48 billion new shares at 18.85 Hong Kong dollars (US$2.43) each,
at the high end of the HK$15.65-HK$18.85 price range, people
familiar with the listing said. GF Securities already has shares
listed in Shenzhen, and the Hong Kong offering came at a 42%
discount to the Shenzhen price of 26.25 yuan (US$4.23) on March 20,
the trading day before the firm began order-taking.
The deep discount drew investors' interest. The firm lined up a
total of US$1.9 billion from 17 so-called cornerstone investors,
who have agreed to hold and buy shares for six months, including
Taiwan's Fubon Life Insurance Co. and asset-management firm China
Cinda Asset Management Co.
Goldman Sachs Group Inc. and GF Capital (Hong Kong) Ltd. were
the lead banks for the offering.
Write to Prudence Ho at prudence.ho@wsj.com
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