China Merchants Securities plans IPO

PUBLISHED : Monday, 07 January, 2008, 12:00am
UPDATED : Monday, 07 January, 2008, 12:00am

With mainland markets soaring, broker seeks to raise up to US$2b in domestic listing

China Merchants Securities has filed with mainland regulators for approval a domestic initial public offering expected to raise as much as US$2 billion, market sources said.

The application was filed late last month after it hired the mainland joint venture brokerages of Goldman Sachs and UBS to arrange the offering, sources said.

However, the deal could come in at as little as US$1 billion depending on the final valuation and would be launched in late March or early April, the sources said.

A number of mainland securities firms, including Guotai Junan Securities, Orient Securities and Everbright Securities, are planning listings this year to expand in a bull market and fend off foreign competition.

Shanghai-listed Citic Securities chairman Wang Dongming said last year that his firm was considering listing in Hong Kong. Its mainland shares have tripled over the past 12 months. The brokerage last year arranged a US$1 billion share swap with Bear Stearns, the fifth-largest investment bank in the United States.

The Shanghai stock market rose 97 per cent last year and the smaller Shenzhen market was up an even more impressive 163 per cent, making them the best in Asia. Before the initial public offering market reopened in mid-2006 following a government-mandated corporate restructuring programme, the mainland markets had been among the world's worst performers.

At the start of last year, Beijing allowed foreign firms for the first time to buy strategic stakes of up to 20 per cent in listed mainland securities companies.

The foreign ownership cap on securities joint ventures remains at 33 per cent and foreign joint ventures are barred from lucrative domestic stock trading.

Foreign investment banks had been hoping the securities regulator would raise the investment ceiling to 49 per cent after the central government agreed to lift a two-year moratorium on the licensing of new joint-venture securities companies last month.

Credit Suisse plans to set up a securities brokerage with the mainland's Founders Securities, while Morgan Stanley, which owns 33 per cent of domestic brokerage China International Capital Corp, is planning an investment banking venture with the mainland's China Fortune Securities.

UBS and Goldman Sachs are the only overseas investment banks to gain control of a mainland joint venture with a local partner. CLSA and Japan's Daiwa Securities own 33 per cent of their investment banking joint ventures on the mainland.

'People see brokerages throughout Asia as fairly cyclical. So when markets are good people invest and when they're not they don't, but generally speaking, the mainland sector should grow as the market deepens and there will be lots of opportunity to build out from equity into fixed income and mergers and acquisitions advisory work,' said Bill Stacey, financial institutions analyst at Credit Suisse.

China Merchants Securities was established in 1991 and has registered capital of 3.23 billion yuan.

The company has more than 50 branches on the mainland. It earned 2.41 billion yuan in the first half of last year on revenue of 4.41 billion yuan.

The brokerage won a 48 per cent stake in Shenzhen-based Bosera Asset Management with a 6.32 billion yuan bid at an auction last month. Bosera manages more than 250 billion yuan of assets.

Capital idea

China Merchants Securities has registered capital of, in yuan: 3.2b yuan