Robust pipeline of fund-raising plans by brokerages bodes well

The recent stock market rally is expected to open the door for more Chinese enterprises to tap the capital market for fresh funds.

Capital market experts say that like the first monsoon shower, the recent rally has brought life and hope after two years of drought. The biggest beneficiaries of the market rally are brokerages, experts say, as they have a slew of instruments at their disposal to raise funds.

Adding further credence to the view was the report that China's largest stock brokerage CITIC Securities plans to raise 40 billion yuan ($6.4 billion; 4.8 billion euros) by issuing a mixed bag of fixed-interest debt instruments over the next three years in domestic and offshore capital markets.

Industry sources say the funds CITIC intends to raise will help finance its ambitious expansion into underwriting and other activities.

CITIC is not the only brokerage that finds itself in such an advantageous position. Several others have announced plans to raise a combined 16.6 billion yuan by issuing bonds since the beginning of this year. That compares with the 14.4 billion yuan raised by seven listed securities firms in 2012, says a report published by iFind, a financial information product developed by Zhejiang Hithink Flush Information Network.

"Listed companies will have stronger financing demands this year, unlike 2012, particularly those in sectors including energy, material, construction, property development, traffic and transportation, and public utilities," says Guo Hui, an analyst with Donghai Securities.

The fund-raising boom is widely expected to improve the financial structures of many Chinese enterprises and create huge underwriting and other opportunities for the large domestic stockbrokerages. Not surprisingly, most of them have seen their business going through the wringers for over a year now, due to the dismal capital market conditions.

Foreign investment banks, brokerages and other financial businesses can also expect a windfall, as many mainland enterprises are keen to tap the foreign capital markets.

So far, 13 listed companies have raised 45.4 billion yuan through private placement of new shares this year. Another 24 have revealed plans to issue new shares in an effort to raise an aggregate 26.3 billion yuan, according to statistics from Wind Information, a financial information service provider.

Meanwhile, 23 listed companies, including CITIC Heavy Industries and Air China, have raised a total of 42.5 billion yuan through bond issues, Wind figures showed. Another 15 enterprises have announced bond issue plans totaling up to 113.65 billion yuan.

"We expect the total funds raised from the capital market in 2013 will exceed that of the previous year by a wide margin," the research firm says.

Indeed, many Chinese enterprises are eagerly hoping that a sustained stock market rally can help ease the financial strain brought about by excessive borrowings from banks to finance growth while equity funding was largely choked off by the prolonged slump.

Chinese listed companies raised 1.02 trillion yuan of funds through their financing activities in the A-share stock markets in 2010, the China Securities Regulatory Commission said in a recent statement.

However, market insiders still think the scale is too small.

Guo Shuqing, chairman of the China Securities Regulatory Commission, says that, "there is an internal structural imbalance in the financial industry".The most pressing problem is over-dependence on the indirect financing system and weakness of direct financing.

By mid-2012, loans and notes financing made up 80 percent of the total social financing, while barely 20 percent came from stocks and bonds, the commission says. By the end of 2011, outstanding bank loans accounted for 54 percent of outstanding social financing, while outstanding corporate stock capitalization and bonds made up only 26 percent.

"This ratio is much lower than 73 percent of the United States and 62 percent of the United Kingdom, where direct financing has played a dominant role," Guo says.

xieyu@chinadaily.com.cn

(China Daily 02/22/2013 page5)