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Beijing broker joins back-door listing rush among peers through 2b yuan asset swap with Chengdu Qian Feng

Capital Securities, a Beijing-based brokerage, is seeking to become a publicly traded company through a more than two billion yuan transaction with Shanghai-listed Chengdu Qian Feng Electronics. It joins  a growing number of  peers that seek back-door listings.

Beijing Capital, the largest shareholder of Capital Securities, will acquire optical-fibre maker Qian Feng by swapping assets, according to an announcement to the Shanghai Stock Exchange.

Qian Feng's assets will then be transferred to major shareholder Sichuan New Tech Digital Equipment, which will hand over its holding in Qian Feng to Beijing Capital.

After the transaction, Beijing Capital will  become the largest shareholder of the new vehicle, which will be renamed Capital Securities Ltd, with a 37.02 per cent stake.

The asset swap will go along with the reform of Qian Feng's share structure that will change its non-tradable state-owned shares into tradable equity.

Trading in the shares, which has been suspended since November 21, will resume no later than February 5.

Back-door listings have become a popular and potentially profitable alternative to initial public offerings for brokerages with the end of a long bear market and following years of loose regulations during which many incurred high debts.

Brokerages waiting for the China Securities Regulatory Commission's final approval for a back-door listing  include GF Securities, Dongbei Securities, Changjiang Securities and  Haitong Securities.

'It is  difficult for brokerages to do IPOs,' said Huang Fuxing, a deputy director of the capital market research office at the economy research centre of the Shanghai Academy of Social Science.

'The requirement of being profitable for three consecutive years is difficult to meet. Brokerages are also  reluctant to let the public get pre-IPO scrutiny of their accounts, which may contain many bad debts.'

An  initial offering would also force the brokerages to  adhere to the new accounting rules  introduced this year, which  would expose many of the losses they had in their business, he said.

Mr Huang said back-door listings presented the parties involved with a chance to make money in the process.

'A brokerage can secretly buy into the target company beforehand, then announce it's going to do a back-door listing. As a result, the listed target company's share price will surge,  enabling both parties to make a lot of money,' he said.

Over the past year, the shares of more than 20 listed companies rumoured to be the back-door listing targets of brokerages have shown extreme volatility. Only  Citic Securities and  Hongyuan Securities are at present publicly traded.



Capital Securities to go public