Chinese brokerage drops plans for Shanghai IPO in favour of Hong Kong

Central China Securities looks to raise up to US$400m from share offer in the city in first half after two years of planning for a mainland debut

PUBLISHED : Monday, 10 March, 2014, 11:46am
UPDATED : Tuesday, 11 March, 2014, 12:35am

After two years, Central China Securities has scrapped its plans for an initial public offering in Shanghai as the mainland brokerage believes it will be easier and quicker to raise up to US$400 million in Hong Kong.

The mid-sized firm, based in Henan province, appeared on the global radar in 2008 when it announced with Wall Street bank Citigroup a plan to set up an investment banking joint venture.

The plan was later scrapped as Citigroup decided to team up with other local partners.

Central China Securities had hired CCB International, the Hong Kong-based investment banking arm of China Construction Bank, one of the Big Four state-run banks headquartered in Beijing, to be the lead sponsor for its upcoming offer in Hong Kong, people familiar with the situation said.

The firm had not yet formally applied to the Hong Kong stock exchange for the listing, but it aimed to launch it within two months, the sources said.

"It will definitely be in the first half of this year," one of them said. "The market environment changes quickly, and the key is to get listed as soon as you can."

Central China Securities' plans for a Hong Kong float came as a surprise to some industry executives, but others said it reflected the new thinking at the mainland's securities regulator.

During the annual meeting of the National People's Congress in Beijing last week, Yao Gang, vice-chairman of the China Securities Regulatory Commission, said the industry watchdog might abolish a policy requiring mainland companies planning a listing in Hong Kong to first seek approval from the regulator.

This would make it easier and faster for mainland companies to raise capital on the Hong Kong stock exchange in the future.

Yao's remark is good news for capital-hungry mainland firms facing a nationwide downturn in economic growth, tightening loan approvals from local banks and a large backlog from the recently lifted 15-month suspension of listings on the Shanghai and Shenzhen bourses.

"Timing means everything in the financial business," said another source. "Central China Securities has sort of wasted two years in preparing its plan for a Shanghai IPO, and as it has been proven to be much easier to list in Hong Kong, then why not?"

The trick to getting a company listed in Hong Kong is simple these days: first, secure so-called cornerstone investors to subscribe to about half the shares in the flotation.

That is why some bankers joke that Hong Kong's listing market looks more like a series of private placements these days.

Mainland brokerages are no strangers to the Hong Kong stock market. Top-tier players such as Citic Securities and Haitong Securities have listed in the city in the past few years. So have mainland banks, including all the Big Four.