Shanghai International (HK), the locally listed vehicle of China's largest brokerage, Shenyin and Wanguo Securities, appears to have found a way to acquire a stake in local brokerage Sun Hung Kai & Co (SHK & Co), which it tried but failed to take over in August. SHK & Co, where Allied Properties bought a 33.1 per cent stake earlier this year, yesterday said it would launch a rights issue to raise almost $500 million to reduce debt. Shanghai International Capital (HK) - the brokerage arm of mainland-owned Shanghai International (HK) - and CEF Capital have been appointed underwriters. Allied Properties has agreed to take up its full entitlement while the two brokers will underwrite the remaining 66.82 per cent of the issue. 'The rights issue is an alternative for Shanghai International to gain access to SHK Securities,' a company source said. According to Hong Kong and mainland securities executives, the change of sovereignty is encouraging mainland brokers to secure a foothold in the territory. Shanghai International backed out of talks to acquire SHK & Co in the final stages after the People's Bank of China opposed the deal. The two-for-five rights issue will involve at least 276.76 million new shares priced at $1.80 each, a 25 per cent discount to Tuesday's closing price of $2.40 and a 19 per cent discount to the ex-rights price of $2.23. The company aims to raise $488 million - $350 million to repay debts and the rest for working capital. A sales manager said he was not surprised to see SHK & Co raising funds after arrival of the new management and a huge loss of staff. SHK & Co announced a 22.7 per cent fall in first-half attributable profit to $44.92 million thanks to a $19.5 million exceptional loss from an associate company disposal. Shanghai International closed yesterday at 80 cents, up 1 cent. Trading in SHK & Co was suspended yesterday but the company has applied to resume trading today. HONG KONG PRESENCE Unit of China's largest broker will underwrite SHK rights issue as means to gain foothold in Hong Kong brokerage SHK Securities Two-for-five rights issue for new shares at 24 per cent discount aims to raise almost $500 million for working capital and to pay debt
