China Galaxy Securities, the nation's seventh-largest brokerage firm by assets, is expanding its margin financing and securities lending businesses to tackle fragmented and low-margin operating conditions at home.
The Beijing-based company, which is controlled by Central Huijin Investment, a subsidiary of the sovereign wealth fund China Investment Corp, said it planned to use about 60 per cent of its US$1.37 billion proceeds from its initial share sale to develop the lucrative but tricky broking business, which allows investors to buy and sell listed securities with money borrowed from a brokerage firm.
Chen Youan, the chairman of Galaxy, speaking yesterday in Hong Kong, where the company is holding a week-long roadshow, said: "The unprecedented open regulatory environment on the mainland and our 1.8 trillion yuan (HK$2.27 trillion) in assets offer a very compelling reason for our expansion in margin financing and securities lending."
Margin financing represents about 22 per cent of overall assets last year, up from just 3 per cent in 2010, while securities lending rose to 3 per cent from scratch.
China's brokerage industry is highly scattered, with the top 10 securities firm representing only 45 per cent of the overall market.
According to bankers familiar with the transaction, the order book for the new shares in the state-owned firm has been well covered but it is too early to tell about their pricing as the company still has to meet investors in New York, Boston and London.
It captured an enlarged order of US$360 million from seven cornerstone investors, including AIA and the Malaysian sovereign wealth fund Khazanah Nasional, which are willing to take a six-month lock-up.
It is understood that the management at Galaxy has expressed a strong desire to price the stock high as the share prices of rivals such as Haitong and Citic Securities have risen since the middle of last month.