Markets have been challenging these days, Chinese brokerages attempt to raise funds via right issues to benefit the situation. A-share right issues approval is on high demand. Orient Securities cleared a $2.6bn deal after Citic Securities. This has been the largest ever rights offering by Chinese brokerages of A/H-share offering at Rmb27.3bn this month.
The next A-share right issuers are Caitong Securities and China Industrial Securities. Caitong Securities has won approval for Rmb8bn from the China Securities Regulatory Commission. Then, China Industrial Securities is in the review process for a Rmb14bn transaction. Stock market in China is performing well during the pandemic in 2020 to 2021. The government has implemented the best management to battle with the virus. Plus it provides liquidity to help small enterprises during lockdowns.
The regulators suggested that business could raise capital expansion to build ‘aircraft-carrier-level’. In this case, right issues are a popular fundraising tool. 10 brokerages have been raising as much as Rmb56.7bn since 2020. The right issue is even expanding when China’s benchmark CSI 300 Index has fallen 14.8% this year. According to a Beijing-based banker, raising the right issue is far easier than placing private shares.
That is because the issue price for private shares is higher than rights issues. Currently, the right issue has a 20% discount that makes it more attractive than private shares. A banker said, pricing the right issue is more flexible. The flexibility lies in the way that regulators do not limit discounts in right issues. Therefore, shareholders are much likely to enjoy a large discount in the market price. Citic Securities is one of the firms that enjoy the discount. Its A-share portion gets 45% discount.
