Mainland brokerage Citic Securities may review its leverage as it seeks to diversify its services and products offered to an its increasingly sophisticated clientele there, according to chairman Wang Dongming.
Speaking yesterday at a press conference on Citic Securities' IPO, Wang said the company was reviewing its business model.
In its listing document, Citic said the bleak global economic outlook and a possible slowdown of the local economy could affect income from brokerage fees as well as investment returns, as the company could encounter difficulty finding suitable investment projects.
Fee-based services, which are low in leverage, are now the company's main source of revenue. These services include advisory, debt and equity financing, sales, trading, brokerage and asset management.
According to a pre-listing document, sales, trading and brokerage operations constituted about 53.7 per cent of Citic Securities' total revenue last year, amounting to 16.27 billion yuan (HK$19.8 billion), down 4.6 per cent from the previous year.
Ge Xiaobo, chief financial officer, said the company would increase its coverage in flow-based businesses, in which the group would leverage its capital position to facilitate clients' market transactions. Flow-based businesses include market-making services and prime brokerage services. Prime brokerage services refer to those offered by securities firms to hedge funds and other professional investors to help them borrow securities and cash, while market-making services allow clients to bet on price advances and declines.
Wang was optimistic about the development of the mainland's capital markets despite the recent downgrade of its 2012 gross domestic product forecast from 9.5 per cent to 9 per cent by the International Monetary Fund. He said the capital markets still lacked diversity in products and services, and that the markets' development should pick up speed as they matured, regardless of the possibility of economic growth.
Wang also predicted that mainland investors would be increasingly interested in putting their money into overseas stock markets.
Citic Securities' initial public offering is backed by six cornerstone investors from around the world, from which Citic has already secured an investment of US$850 million. Wang said the international mix of the investors should help Citic Securities invest in international stock markets for its mainland clients.
Citic Securities is offering 995.3 million shares at an indicative price range of HK$12.84 to HK$15.20 each, putting the total deal size as high as HK$15.13 billion and making it one of the largest IPOs this year in Hong Kong. Only 5 per cent of the shares will be open to the public here.