Citic Securities, China’s largest home-grown investment bank, plans to sell 350m new shares to fund expansion in the face of impending competition from foreign financial groups.
The secondary share sale could raise more than Rmb20bn ($2.6bn) based on Citic’s closing price of Rmb58.48 on Tuesday, allowing the group to build a war chest for acquisitions and organic growth.
Citic said on Tuesday it planned to use about Rmb400m to raise its stake in China Asset Management, the first company to issue exchange traded funds in China, from the current 41 per cent to almost 77 per cent.
It is also planning to expand into the Hong Kong market, and will need a lot of cash to attract top managerial talent.
After last month’s trade talks with Washington, the Chinese government has agreed to allow international brokerages back into the domestic market, ending a ban that was introduced last year.
Nearly 100 domestic securities companies, many of which were virtually bankrupt and mired in trading scandals less than two years ago, dominate the Chinese securities industry.
Combined losses at Chinese brokerages exceeded $1.8bn in 2004, the year before the start of a bull market that has reversed their fortunes.
“This year has been very good for brokerages, with monthly turnover of more than Rmb5,000bn for the last couple of months,” said Tracy Yu, head of regional financials at Citigroup.
Profit at Citic Securities jumped tenfold in the first quarter, after registering a record Rmb2.4bn profit in 2006, and its shares have more than doubled since the start of the year, making it the company with the largest free float in the Chinese market.
It controls about 8 per cent of the secondary broking market and about 20 per cent of equity underwriting. It is the top underwriter of corporate bonds in China.
Citic and its much smaller competitor Hong Yuan Securities are the only listed brokerages in China.