Industrial Securities eyes Hong Kong IPO to bolster financial strength
Industrial Securities, a mid-sized mainland brokerage based in Fujian province, is studying a plan to list shares in Hong Kong to enlarge its capital base following a private share placement to raise 8 billion yuan (US$1.27 billion) on the mainland stock market.
Liu Zhihui, president of Industrial Securities, said on Monday that the company is giving priority to boosting its financial strength to support its investment banking and brokerage segments ahead of a full opening of the mainland’s securities market.
“Capital is becoming increasingly important for the growth of domestic brokerages,” he said. “Industrial Securities is aiming to become an international securities firm with the ability to compete on the international market.”
He would not disclose the time frame and fundraising amount for the potential Hong Kong initial public offering (IPO).
The mainland’s biggest securities firms including Citic Securities and Haitong Securities are already listed in Hong Kong.
Liu said Industrial Securities is taking a gradual approach in expanding its footprint outside the mainland, seeking to offer more brokering, asset management and investment banking services in Hong Kong through its subsidiary – Industrial Securities International.
The company, the No 14 securities firm on the mainland in terms of revenue, is now awaiting an approval from the securities regulator to conduct a refinancing of 8 billion yuan via a private offering.
The proceeds from the A-share market will be used to replenish Industrial Securities’ capital, invest in IT infrastructure and expand scope of the businesses.
Mainland brokerages – those securities firms whose businesses encompass brokering, investment banking, proprietary trading, asset management and margin financing – reported lacklustre earnings in 2017.
China’s brokerages reported an overall 8 per cent profit drop last year.
However, Industrial Securities posted net profit of 2.29 billion yuan in 2017, up 12 per cent from a year earlier.
With additional capital infusion, the brokerage firms will have enough funds on hand to underwrite big financing deals for their clients.
Liu said Industrial Securities is also looking to bolster its brokerage arm by better using the latest financial technologies to woo more clients.
Beijing is poised to further open up the securities market by letting foreign investors take control of joint-venture brokerages.
Foreign ownership is now capped at 49 per cent, but the mainland pledged last year to increase the maximum stake held by foreign firms in joint ventures to 51 per cent.
The liberalisations will result in a direct clash between domestic brokerages and powerful international rivals such as Goldman Sachs and Morgan Stanley.
To date, most joint-venture securities firms with Chinese partners taking a majority stake, are unable to engage in a full range of businesses including investment banking, asset management and brokerage due to regulations seen as favouring local players.
President Xi Jinping said last week that further liberalisation of the securities and finance sectors was likely this year.
“Domestic brokerages have an edge in understanding the local market,” said Zheng Chengmei, board secretary of Industrial Securities.
“We are on our own path to grow bigger and compete [against international rivals].”