Feb. 9, 2007 (China Knowledge) – The hottest topic in the securities industry for 2007 will undoubtedly be the next wave of IPOs by securities firms after Chinese banks led the previous IPO wave in 2006. Following an industry slump from 2001 to 2005, the bullish market and sounder risk control systems imposed by the China Securities Regulatory Commission (CSRC) have helped greatly in the recovery of the securities industry from its crisis. Although it seems that the best way for a firm to go public is via an IPO, the other available option, a back-door listing, also has its advantages in that the firm need not report profit for consecutive years. This CKF Securities Weekly report will touch on three issues - why securities firms should go public; why 2007 will be a good year for public listings; and the advantages and disadvantages of IPOs and back-door listings. Highlights of the report:
- In December 2002, CITIC Securities Co. raised RMB 1.8 billion through the issuance of 400 million shares at RMB 4.50 per share. Proceeds raised from the IPO helped the company to expand rapidly through mergers and acquisitions. By the end of 2005, at RMB 5.64 billion, the net assets of CITIC Securities ranked number one among securities firms, about 1.64 times more than its second-ranked peer. CITIC Securities’ revenue in 2006 is estimated to increase 450% to more than RMB 2.2 billion, helped by adequate capital in the company and likely making it the top securities firm in China. - The success of foreign securities firms has demonstrated that large capital size is good protection against risks. During the 1980s, when the average ROE in the industry ranged from 27% to 50% but dropped to -22% in 1991, the stock market greatly fluctuated. Hence, should securities firm be short of capital, business expansion would not have possible during the bull market. And at the same time, a securities firm would find it difficult to withstand the risks brought about by the bear market. The fact that many small to medium securities firms became bankrupt during the industry crisis from 2003 to 2005 exemplifies this. - Besides foreign securities firms, domestic securities firms are facing intense competition from domestic banks and insurance companies - banks and insurance companies are receiving approvals from regulators to establish their own fund management companies and are raising capital by listing on the Shanghai and Shenzhen stock exchanges. - Securities firms going public in 2007 will prevent head-on competition with other securities firms that are planning to list in 2008 as the current high issuing price is likely to help the 2007 batch of firms raise more capital. Get a copy of CKF’s Securities Weekly today! For more information, visit: http://www.chinaknowledge.com/Financial_Weekly/
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China Knowledge is a Singapore-based research and intelligence services company that focuses on businesses and financial markets in China. China Knowledge Press, a unit of China Knowledge, produces news stories that appear on its website, Bloomberg, ISI, Factiva and B2B website Alibaba. Our articles are published in local newspapers and magazines while our financial reports and business guides on China are written and published in-house.
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