Chinese brokerage Guotai Junan to raise HK$16b in Hong Kong IPO

PUBLISHED : Monday, 27 March, 2017, 10:01pm
UPDATED : Monday, 27 March, 2017, 10:47pm

China’s third biggest brokerage by assets, Guotai Junan Securities, plans to raise HK$16.04 billion in an initial public offering (IPO) in Hong Kong, the company said on Monday.

The company’s decision to offer 1.04 billion new shares at a fixed price of HK$15.84 per share came as a surprise to many as most IPO deals determine their final pricing based on actual demand, giving out indicative price ranges instead.

The subscription period for the offering starts at 9am Tuesday and ends at 12pm Friday. The company hopes to begin trading on April 11.

“We decided to offer shares at a fixed price mainly because of the huge demand we saw from investors during our road shows,” said Yang Dehong, chairman of Guotai Junan Securities.

“We believe this is quite lucrative pricing in the market,” he added. “We have full confidence in having a very successful IPO launch with this price.”

The pricing represents around a 25 per cent discount to the firm’s closing share price on the Shanghai stock exchange on Monday. Guotai Junan said it referred to the top five mainland brokers’ closing prices in Hong Kong as the basis for its IPO pricing.

“The PE ratio of the pricing now represents an approximately 15 per cent discount to that of the top five mainland brokerages’ closing prices on the Hong Kong bourse last Friday,” said Yang. “We need the discount to satisfy the huge passion from investors.”

About a dozen mainland China securities companies have launched IPOs in Hong Kong in recent years in an effort to raise funds and boost their international exposure, including the top two Chinese brokerages Citic Securities and Ping An Securities.

In the first nine months of 2016 Hong Kong maintained its position as the world’s largest IPO market in terms of total funds raised and number of IPOs, thanks mainly to big offerings by mainland financial institutions, according to Deloitte.

Around 30 per cent of the funds raised by Guotai Junan will be used for improving the brokerage’s financial institution business, while another 30 per cent will be allocated to expanding its individual financial service operations, according to the company’s documents related to the IPO.

Having witnessed the underperformance of giant deals from mainland China like the Postal Saving Bank, some traders still remain suspicious of actual feedback from investors to new offerings.

“I don’t think the sentiment will be too good [for Guotai Junan],” said Alex Wong Kwok-ying, director at Ample Finance Group.

“Hong Kong people don’t have that good an appetite for large scale IPOs.”

Bank of America Merrill Lynch, Goldman Sachs, Shanghai Pudong Development Bank International and Guotai Junan’s Hong Kong arm, Guotai Junan International, have been engaged by the company as joint sponsors of the deal.