CES IPO prelude to restructuring?
Updated: 2009-08-18 07:16
By George Ng(HK Edition)
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HONG KONG: The initial public offering (IPO) of China Everbright Securities Co Ltd (CES) in Shanghai may have kicked off a process that could see Hong Kong-listed China Everbright Ltd develop itself into a financial holding flagship for State-owned China Everbright Group.
CES, a 39.31 percent-owned associated company of China Everbright Ltd, plans to expand its operation to Hong Kong after it goes public.
The Shanghai-based brokerage raised 11 billion yuan by selling 520 million new shares in an IPO that starts trading today.
"CES will set up a subsidiary in Hong Kong as soon as conditions warrant," Lou Zhefu, deputy chairman of CES, said in a pre-IPO roadshow earlier.
He did not elaborate on how the brokerage will execute its Hong Kong strategy.
Some market watchers believe that CES may try to gain a foothold in Hong Kong by setting up a joint venture with China Everbright Ltd.
However, others don't buy the idea, reasoning that a joint venture will overlap with China Everbright Ltd's current securities operation in Hong Kong.
With the same mainland background and business network, as well as both targeting cross-border securities and investment banking businesses, CES and China Everbright Ltd will find themselves in a position to compete against each other directly.
The odds will be higher for China Everbright Ltd to entirely inject its securities business assets into CES, they said.
"CES' march into Hong Kong will pose direct competition to China Everbright Ltd. It is possible that CES will acquire China Everbright Ltd's Hong Kong businesses," said Francis Lun, general manager of Fulbright Securities Ltd.
This will not only avoid the problem of overlapping operations within the China Everbright group, but will also bring synergy to the whole group, he said.
China Everbright Group controls CES through its 40.9 percent direct holdings in CES and its 54.5 percent holdings in China Everbright Ltd.
This notion finds some support from a suggestion by CES president Xu Haoming, who told media that overseas expansion would be an option for the securities firm after its IPO.
"The China Everbright Group has plenty of securities resources in Hong Kong. So it is an option for us to consolidate brokerage, asset management and underwriting businesses within the group," Xu said.
China Everbright Group owns no other securities business in Hong Kong except those operated by its China Everbright Ltd unit. That meant Xu was referring to China Everbright Ltd's securities businesses.
Once the asset injection is a done deal, China Everbright Ltd will have no business operation of its own. Its only remaining assets will be a 39.31 percent stake in CES (diluted to 33 percent after CES' Shanghai IPO) and a 6.23 percent stake in China Everbright Bank, another unit of the China Everbright Group.
This will make China Everbright Ltd a pure financial holding company, coinciding with China Everbright Group's long-touted plans to establish a financial holding company within the group.
In September 2007, China Everbright Group was virtually awarded China's first financial holding company license after it secured from the State Council approval to implement its restructuring program.
Under the restructuring program, the group will strip off its non-financial assets and inject them into a separate entity. It will then restructure into a financial holding company that will comprise various financial service subsidiaries, including banking, securities and insurance subsidiaries.
China Everbright Ltd, after the presumptive injection of its only securities business operation into CES, will be in a perfect position to act as the group's flagship in implementing its financial holding strategy, particularly in its expansion into overseas markets.
After 12 years of operation in Hong Kong, the company has gained sufficient expertise to deal with Western-style financial markets. It will be positioned better than any other subsidiary within the group to undertake implementation of the group's overseas strategy.
Moreover, as a listed holding company, China Everbright Ltd also enjoys flexibility in tapping the capital market when the necessity arises to implement the group's financial holding strategies, including acquisitions, mergers, asset transfers and shareholding restructurings in subsidiaries.
(HK Edition 08/18/2009 page4)