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Laura He

Shenwan Hongyuan, China’s oldest brokerage firm and currently the sixth largest by market value, is seeking to raise as much as US$1.25 billion in Hong Kong’s largest IPO this year to replenish its capital and expand internationally.
Shenwan, already listed on the Shenzhen Stock Exchange, is set to become the 12th Chinese brokerage firm with dual listings in Hong Kong and mainland markets.
The firm, controlled by state-owned Central Huijin Investment, plans to sell 2.5 billion shares priced between HK$3.63 and HK$3.93 apiece, with 94 per cent of the offering dedicated to institutional investors and the rest for the general public.
Shenwan is expected to list on the main board on April 26, with pricing due on April 18.
The listing plan came after Shenwan reported a 9.6 per cent fall in net profit last year, mainly due to a drop in commissions and brokerage fees.
“Chinese brokerages usually live at the mercy of the macro environment. They are reliant on market conditions,” Yang Changyun, chief financial officer at Shenwan Hongyuan, said at a press conference on Thursday.
China’s brokerage industry struggled last year because of a market downturn and a slowing economy. The Shanghai Composite Index shed 24.6 per cent in 2018 to rank at the biggest decliner among major markets. Stock trading volumes and new share listings both fell to levels not seen since 2014. Profits for the securities industry totalled 66.6 billion yuan (US$9.9 billion), official data showed.
 Chinese brokers take a collective pay cut after a miserable 2018 in the world’s worst-performing stock market
Last year, Shenwan’s investment banking revenue plunged 37 per cent, followed by a 28 per cent fall in brokerage fees. The downturn saw the firm slide out of the top 20 in terms of league table rankings for IPO deal makers, down from 14th in 2017.
Shenwan is the result of multiple mergers of China’s oldest securities firms over 20 years. It started with the merger between Shenyin Securities and Wanguo Securities in 1996. Wanguo, founded in 1988 by legendary trader Guan Jinsheng, known as the godfather of China’s securities industry, was once the biggest Chinese brokerage in early 1990s.
In 1995 Wanguo was under the spotlight for what became known as the “327 incident”, which involved the placement of a huge sell order on three-year government bond futures minutes before the close of trading on February 23. Following the incident, Guan was jailed for “bribery and abuse of public funds” and authorities suspended government bond futures trading for 18 years. In 1996, Wanguo Securities was forced to merge with Shenyin Securities.
China’s securities firms suffer a miserable 2018 amid slumping stock market, but analysts expect a better year ahead
In 1998, the new entity, named Shenyin Wanguo Securities, advised on the country’s biggest asset restructuring deals, including Shanghai Pharmaceuticals, Shanghai Shenda, Shanghai Sanmao Group, and Nantong Machinery. For both 1998 and 1999 the firm ranked No 1 among brokerages in terms of net assets, net profit and stock trading volume.
In 2015, the firm merged with Hongyuan Securities, the first listed securities firm in China, in a deal valued at nearly 40 billion yuan. It was the country’s biggest brokerages merger by then.
After the merger, the new entity known as Shenwan Hongyuan briefly became the second largest brokerage firm in China by market value.
Nevertheless, the firm’s investment banking revenue has fallen since 2016.
Last year, Shenwan wrote off 618 million yuan in credit impairment losses, related in part to the pledged shares meltdown. These included a 362 million yuan write-off related to Shanghai RAAS Blood Products, 24.57 million yuan related to Zhongnan Red Cultural Group, and 9.89 million yuan related to Harbin Gloria Pharmaceuticals.
Shenwan issued several bonds last year, raising 7 billion yuan in July and an additional 5.1 billion yuan in September.
Chinese brokers take a collective pay cut after a miserable 2018 in the world’s worst-performing stock market
This year the firm has raised 2.2 billion yuan through a bond sale, after announcing a debt-raising target of 8 billion yuan in January.
As of Thursday, the firm had an outstanding bond principal of 64.4 billion yuan, equivalent to 19 per cent of its total assets, according to data compiled by Bloomberg.
The firm’s debt-to-asset ratio reached 75.23 per cent at the end of last year, higher than the industry average.

Hong Kong’s IPO market has cooled since the start of this year, tracking a global trend, as the ongoing US-China trade war and slowing global growth have weighed on deal making activities.
In the first quarter, 37 companies raised a combined US$2.6 billion at IPO, down 16 per cent from the same period last year. Still, Hong Kong ranked second globally by deal value, trailing Nasdaq.
Shenwan said some of the proceeds from its upcoming IPO will also be used to expand its services overseas. These include advising on cross-border IPOs and bond issuance by Chinese companies, and rolling out products and services to help Chinese households invest globally.


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After 9.6 per cent fall in profits, Chinese brokerage giant plans to raise capital for international expansion


After 9.6 per cent fall in profits, Chinese brokerage giant plans to raise capital for international expansion.
