China Securities Co set to become 4th mainland brokerage this year to list in Hong Kong

The company, which reportedly plans to raise US$1 billion, says it faces risks including intense competition

PUBLISHED : Tuesday, 27 September, 2016, 8:42pm
UPDATED : Tuesday, 27 September, 2016, 11:01pm

China Securities Co (CSC) has submitted a prospectus to the Hong Kong bourse and is poised to become the fourth mainland brokerage to go public in the city this year.

The company had been planning to raise up to US$1 billion through an initial public offering before the end of 2016, IFR, a Thomson Reuters publication, reported in June.

In the prospectus, filed with the stock exchange on Monday, CSC claimed it had made big progress in the past few years, but also highlighted risks it is facing, stemming mainly from intensive competition in existing and new business, and possible restrictions due to regulatory requirements.

The prospectus says that, according to the Securities Association of China, “the company ranked No.1 for four consecutive years from 2012 to 2015 in terms of return, on average, among China’s top 20 largest securities firms by total asset.”

Investors’ interests for subscribing IPO shares remain lukewarm rather than hot
Louis Tse Ming-kwong, director, VC Brokerage

According to data provider Wind Info, CSC’s ranking advanced from 12th in 2006 to second in 2015 in terms of aggregate equity, it added.

“In recent years, there has been considerable pressure on commission rates for some of our business…in particular, our securities brokerage commission rates have been in decline, and may further decline due to intense competition in the future,” the prospectus said.

While the securities brokerage and financing businesses contribute a significant proportion to the company’s revenue, a drop in trading activities or commission rates would adversely affect the company’s performance, it said.

CSC said it aimed to become “a best-in-class, full-service investment bank with China roots and global vision”, and planned to use the proceeds of the IPO to expand its business outlets, improve its internet platform, enhance its ability to invest and improve overseas and cross-border services.

Central Huijin, a unit of China’s sovereign wealth fund, holds 40 per cent of the total share capital of CSC, while Citic Securities, the largest brokerage in the mainland, holds 7 per cent.

CSC’s business includes investment banking, wealth management as well as other trading and investment services.

It is the fourth mainland brokerage to announce a flotation in Hong Kong this year.

On Tuesday, China Merchants Securities kicked off its H-share sale for retail investors, as it seeks to raise US$1.5 billion in what would be the third largest IPO in Hong Kong so far this year.

Orient Securities raised US$1 billion in April, while Everbright Securities sold US$1.2 billion of shares in August.

Louis Tse Ming-kwong, a director of VC Brokerage in Hong Kong, said market sentiment was now right for a flotation, given the recent performance of the benchmark Hang Seng Index has been relatively stable.

“But investors’ interests for subscribing IPO shares remain lukewarm rather than hot,” he said, adding that he expects CSC to reach its flotation target, without creating a flood of subscriptions from investors.