Galaxy Securities' IPO is proof that the regulator is favouring brokerages

Galaxy Securities' plan to float in Shanghai is proof that the path is easing for such companies

PUBLISHED : Tuesday, 04 March, 2014, 5:09am
UPDATED : Tuesday, 04 March, 2014, 5:09am

The initial public offering plan announced by Galaxy Securities strengthened evidence that the mainland regulator would start a new round in its effort to bolster the brokerages amid a weak A-share market.

Hong Kong-listed Galaxy sought to raise 6.5 billion yuan (HK$8.2 billion) on the Shanghai Stock Exchange to join eight domestic rivals awaiting approval from the China Securities Regulatory Commission. The brokerages would likely earn a fast ticket to the stock market after Beijing lifted a 15-month ban on listings in January and is expected to approve new share sales worth 250 billion yuan this year.

The brokerages, under the direct oversight of the CSRC, are believed to be the top beneficiaries of the fundraising bonanza with the regulator attempting to create large-sized Chinese securities firms similar to Morgan Stanley and who could compete against international rivals.

"The regulator is encouraging consolidations and bold diversifications among brokerages," said Howhow Zhang, the research head of fund consultancy Z-Ben Advisors. "Fundraisings via IPOs would help accelerate the process."

Based on its H share price, Galaxy's planned 1.69 billion-share floatation could make it the largest A-share IPO this year, topping Shaanxi Coal Industry's four billion yuan share offering. Galaxy is the mainland's sixth-largest brokerage by revenue, while Guotai Junan Securities and Guosen Securities are also among the more than 600 applicants awaiting the CSRC's approval.

China's A-share market has been languishing since 2011 as brokerages grappled with dwindling incomes from trading commissions. They also fell victim to the listings drought.

For the past few years, the CSRC has given the green light to brokerages to conduct margin trading and short selling as well as launch mutual funds and invest in private equity deals to help them diversify revenue sources.

Last week, Founder Securities said it would merge with China Minzu Securities, the latest sign that consolidations would be encouraged by the regulator.

Yesterday, Galaxy's H shares edged down 0.6 per cent to HK$4.88.