Great Wall Securities passes regulator scrutiny for 3.5 billion yuan IPO
Securities company plans to float 500 million shares on the SME board of Shenzhen Stock Exchange
Great Wall Securities has received the go-ahead to raise 3.5 billion yuan (US$555.6 million) in an IPO on the Shenzhen Stock Exchange as China’s securities regulator encourages brokerages to enlarge their capital base and create new revenue sources.
The Shenzhen-based securities company plans to float 500 million shares on the SME board, opening the floodgates for at least four other rivals, including TF Securities and Guolian Securities to raise funds from the domestic capital market.
The China Securities Regulatory Commission (CSRC) announced on its website that the IPO was approved after the close of market on Tuesday.
The green light given to Great Wall Securities showed the regulator’s determination to underpin domestic securities firms ahead of further opening of the country’s A-share market.
The company reported a net profit of 896 million yuan in 2017, down 9.6 per cent from a year earlier.
On the mainland, a listing applicant is unlikely to secure an initial public offering approval if it reports declines in earnings for the past years.
“Brokerages are receiving strong support from the regulator to strengthen their capital bases,” said Ivan Li, asset manager with hedge fund Loyal Wealth Management. “A new round of IPOs by brokerages are expected to take place soon.”
On the mainland, securities firms are known as brokerages, but their business scope encompasses brokering, asset management, investment banking, margin financing and proprietary trading.
Brokerages’ fee income used to account for about two-thirds of their total businesses because of active trading of shares by more than 100 million retail investors.
Beijing aimed to create the country’s own “Morgan Stanley” and “Goldman Sachs” ahead of the full opening of the mainland’s securities industry.
Domestic securities firms have been encouraged to rebrand as wealth managers rather than brokers to expand their sources of revenue.
To date, the country’s securities industry is still off-limits to foreign investors.
An overseas securities business can offer brokerage and investment banking services on the A-share market through its joint ventures with local partners.
Foreign ownership is capped at 49 per cent now.
Beijing pledged last year to raise the maximum stake a foreign partner can own in the joint venture to 51 per cent.
Chinese President Xi Jinping said on Tuesday that further liberalisation of the securities and finance sectors were likely to be implemented this year.
Great Wall said it will use the proceeds to develop its financial technology, increase investments in its subsidiaries and expand its international operations.
Citic Securities is now the country’s largest brokerage with net profit of 11.4 billion yuan for 2017, just barely beating Morgan Stanley’s fourth-quarter net income of US$1.7 billion.
Currently, 31 mainland brokerages including the largest players such as Citic Securities are traded on the Shanghai and Shenzhen stock exchanges.