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UPDATE 1-Chinese broker Guotai Junan raises $2.1 bln in HK share offer-source
April 3, 2017 / 3:55 AM / 8 months ago

UPDATE 1-Chinese broker Guotai Junan raises $2.1 bln in HK share offer-source

* Had offered 1.04 bln shares at fixed price of HK$15.84 each

* Narrow discount to Shanghai stock price hurt retail demand (Adds analyst comment, underwriting fees)

By Elzio Barreto

HONG KONG, April 3 (Reuters) - Guotai Junan Securities Co Ltd, China’s third-largest brokerage by assets, raised $2.1 billion in a rare fixed-price share offering that was the biggest stock sale in Hong Kong in six months, a source with direct knowledge of the deal said on Monday.

The Shanghai-listed company offered 1.04 billion new shares at a fixed price of HK$15.84 each, putting the total deal at HK$16.5 billion ($2.12 billion). Guotai Junan’s deal was the largest stock sale in the city since the $7.63 billion IPO of Postal Savings Bank of China in September.

Concerns over volatility in China’s equity markets and a smaller-than-expected discount to the price of its Shanghai-listed stock curtailed demand for the deal, particularly from retail investors, analysts said. Those mom and pop investors have a significant influence over first-day trading in Hong Kong share offerings.

The shares were originally offered at a discount of 25 percent to Guotai Junan’s closing price in Shanghai on March 24, but a decline in the shares last week narrowed that discount to about 23 percent.

“There wasn’t much demand from the retail investors,” said Jasper Chan, assistant manager of corporate finance at Hong Kong brokerage Phillip Securities, which offers margin loans for retail investors to buy into share offerings in the city. “The discount was not quite attractive and the market sentiment is not good at the moment.”

A fixed-price share offering is unusual, with most deals setting an indicative range before deciding on the final pricing, depending on demand.

Guotai Junan did not immediately respond to a Reuters request for comment on the share sale.

The company plans to use 30 percent of the share sale proceeds to develop its prime broking and lending business for institutional clients and another 30 percent to open new retail branches and launch financial technology (Fintech) services, it said in the prospectus for the sale.

The remainder will be used to expand its asset management and overseas businesses, including potential joint ventures with international firms.

Guotai Junan secured $598 million in commitments from cornerstone investors for the share sale, including $388 million from private equity firm Apax Partners and $100 million from real estate investment firm Winland Group.

The shares will debut in Hong Kong on April 11.

Bank of America Merrill Lynch, Goldman Sachs, Shanghai Pudong Development Bank International and Guotai Junan’s Hong Kong investment-banking arm - Guotai Junan International - acted as joint sponsors for the deal.

Guotai Junan also hired another 16 banks as joint bookrunners for the deal. The banks stand to jointly earn $42 million in fees, equivalent to a 2 percent underwriting commission. ($1 = 7.7715 Hong Kong dollars) (Reporting by Elzio Barreto; Editing by Stephen Coates and Muralikumar Anantharaman)

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