Shanghai-listed Everbright Securities is seeking a Hong Kong initial public offering (IPO), braving poor market sentiment following the stock market rout in summer and Beijing’s industry-wide crackdown.
The company, controlled by state-owned financial conglomerate China Everbright Group, is looking to raise US$2.5 billion. But it might have missed the best window, which lasted from April to May, when a leverage-fuelled rally in the mainland stock market pushed the benchmark index to a seven-year high and pumped up the Hong Kong equity market, particularly the brokerage sector.
Nanjing-based Huatai Securities seized the moment with the biggest flotation in Hong Kong this year, raising US$4.5 billion in late May. Its smaller rival GF Securities raised US$3.6 billion in April. Another brokerage, China International Capital Corporation, raised US$811 million through its Hong Kong IPO in early November.
“Valuations for mainland brokerages have been under pressure since June. Given their profitability is closely related to commissions for trading and equity underwritings, investors are not bullish on short-term returns,” said Kevin Leung, director of global investment strategy at Haitong International Securities.
But the ongoing probe on several brokerages is a bigger damper, said Leung. “The worst thing is that the authorities are keeping the investigation results a secret. The market has no idea how to prepare for, say, huge fines.”
Six of the eight-member executive committee at Citic Securities have been taken away for questioning. Haitong Securities and Guosen Securities are being formally probed by the China Securities Regulatory Commission. The Hong Kong boss of another large brokerage, Guotai Junan, has been missing since last month.