Investors rush to grab share of Huatai float

The first-day scramble for subscriptions to the initial public offering of mainland stock brokerage Huatai Securities Co Ltd in Hong Kong reiterates investor confidence in a continued capital market rally, marketmen said on Tuesday.

Huatai, based in Jiangsu province, is offering 1.4 billion new shares in Hong Kong, at an indicative price range of HK$20.68 ($2.69) to HK$24.80 apiece, representing a discount of between 45 percent and 34 percent to the closing price of its Shanghai-listed A shares. The company said it would use the funds raised from the share offering, which commenced in Hong Kong on Tuesday, for its margin finance and lending businesses.

HTSC shares had already surged to the daily limit of 10 percent and reached 30.04 yuan ($4.84) before trading in the scrip was suspended on Tuesday morning. The performance of HTSC and other brokerages were responsible for the market rally, which saw the benchmark Shanghai Composite Index move up by 3.1 percent.

The brokerage has already grabbed eyeballs after winning backing from several high-profile cornerstone investors, like Pony Ma, chairman of Internet giant Tencent Holdings Ltd, as well as big names in the asset investment sector like Och-Ziff Capital Management Group and Ping An Asset Management. About 13 cornerstone investors have said they would buy $1.9 billion worth of HTSC's H shares.

"We selected these cornerstone investors because they support the company's long-term strategy. A listing in Hong Kong will make HTSC an international stock brokerage firm capable of providing a broad range of services," said Wu Wanshan, chairman of HTSC. He said that the company would "give the Hong Kong market priority considerations in its offshore development."

Francis Kwok, marketing director of Hong Kong-based Bright Smart Securities, said: "Mainland-based brokerages are among the favorites of Hong Kong investors."

Kwok said that the H-share prices of the major Hong Kong-listed mainland stockbrokerages, such as CITIC Securities, Haitong Securities and Galaxy Securities, have more than doubled in the past few months, and can rise even further. He said that the HTSC float is an attractive option for retail investors as its shares are being offered at multiples of below 20 times, considerably lower than those of its peers in Hong Kong.

The price-to-book ratio of the HTSC shares stands at around 1.8 times, which is relatively low among mainland brokerages, analysts said. Some stock analysts said that convincing Pony Ma and Ding Lei from NetEase to become cornerstone investors may help HTSC adopt a wider use of Internet technology in its brokerage business.

In its Hong Kong IPO, HTSC can expect to raise as much as $4.5 billion at the upper limit of its share offering price. The final amount of capital raised can go up to $5.2 billion if an overallotment option is exercised to meet subscription demand.

That would make it the largest share sale in the Asia Pacific region since the $4.9 billion Australian IPO of health insurer Medibank Private Ltd in November.

HTSC said in its prospectus that about 60 percent of the proceeds of its Hong Kong IPO will be used to finance capital-based intermediary business, while the rest will be utilized for other business purposes and as working capital.

HTSC said in its prospectus that its market share in stock and fund trading sector had expanded to 8.3 percent in the first three months of this year, up from 7.9 percent last year, making it the largest brokerage in the mainland by trading volume, according to data provider Wind Info.

It has also been committed to providing financial services in the merger and acquisition sector, conducting the most deals among mainland-based brokerages from 2013 to this March, according to Mergermarket data.

The deal is set to be priced on Friday and its debut on the Hong Kong stock exchange is slated for June 1.