Haitong boosts fund-raising goal to 26b yuan for expansion drive
Haitong Securities, the second-largest listed brokerage on the mainland, said it planned to raise as much as 26 billion yuan, double its earlier goal, to boost capital, enter new businesses and expand overseas.
Haitong, which became a publicly traded entity by taking control of a shell company listed in Shanghai, announced in July that it would issue up to one billion new shares at a price of at least 13.15 yuan each to raise about 13.1 billion yuan.
The new target amount came after Haitong's larger rival, Citic Securities, raised 25 billion yuan last week to fund its private equity arm and fuel overseas expansion.
The China Securities Regulatory Commission has made strong capital levels a requirement when brokerage firms seek approval to launch new businesses, such as asset management and private equity investments. This has prompted brokerages to raise more funds.
Shares of Haitong Securities closed 1.2 per cent higher at 51.49 yuan yesterday. The stock is up 637.8 per cent so far this year.
Doubling the target amount may mean a higher share sale price, especially if the number of shares offered remains the same. This adds to existing worries over the high valuations of listed brokerages.
'I would rather say the high valuations of brokerages contain risks, instead of saying that it's irrational,' said Zhu Ping, the chief investment officer of Guangzhou-based GF Fund Management.
'There are many uncertainties over how long the bull market in China can last. Brokerages will definitely take the high valuation as a chance to raise money.'
Haitong did not reveal other details of the share placement in its statement filed with the Shanghai Stock Exchange.
Analysts expect the share price to be much higher than the originally announced 13.15 yuan.
Shenyin Wanguo Securities said in a report yesterday that the estimated price should range from 26 yuan to 46.30 yuan.
'A higher share placing price, [meaning fewer new shares added], will help lessen the diluting effect on the earnings per share of the company,' the report said.
'A properly higher price will also make it easier for the share placement plan to be approved,' said the report, which estimated the capital level of Haitong would increase by up to 500 per cent after the share sale, second only to that of Citic Securities among other peers.
The Haitong board also approved a plan to more than double total proprietary investment in stocks, warrants and funds to 3.5 billion yuan from 1.5 billion yuan, the statement said.
Concerns are growing over the high valuations of listed brokerages
The increase in Haitong Securities' share price this year: 638%