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Investment banks' IPO biz cut by half in 2012

By Yao Jin (China Economic Net)

14:01, February 04, 2013

In 2012, investment banks' IPO business suffered significant depression due to the slowdown of new stock issuance.

According to statistics from Wind Information, in 2012, 39 securities traders underwrote the IPOs of a total of 153 enterprises in the markets of Shanghai and Shenzhen, raising an actual amount of RMB 99.46 billion Yuan, a reduction of 62.90 percent compared with the RMB 268.075 billion Yuan raised in 2011. As a matter of fact, almost half of the securities traders who are qualified IPO sponsors and underwriters failed to complete any IPO transaction in 2012.

In terms of market leaders, in 2012, 2 securities traders, CITIC Securities and Guosen Securities, raised more than RMB 10 billion Yuan in IPOs, far ahead of other traders in the market with underwriting amounts of RMB 17.012 billion Yuan and 16.812 billion Yuan respectively. In 2011, there were 6 securities traders, namely Ping An Securities, Guosen Securities, CITIC Securities, Essence Securities, China Securities, and China Merchants Securities, who raised more than RMB 10 billion Yuan in IPOs, and the top 2, Ping An Securities and Guosen Securities, both raised more than RMB 20 billion Yuan.

"The cause is the depression of the stock market environment; the primary market is reforming, its issuance pace being very slow; the secondary market performs poorly, with difficulty in issuance", said He Qiang, director of the Securities and Futures Research Institute of Central University of Finance and Economics.

The once glorious "King of Sponsor and Underwriter" Ping An Securities is now reduced to "IPO Killer". According to statistics, Ping An secured the top position of the market with RMB 29.795 billion Yuan of IPO fund and an 11.11 percent market share in 2011. In 2012, however, it fell out of the top 3, its underwriting amount reduced by 79.35 percent, with only 14 IPO projects, whereas it had 34 in 2011.

Are there causes on the securities traders' part other than the general environment?

Take Ping An securities as an example. According to industrial insiders, there have been several causes for the increasingly stringent audit standard on IPO projects sponsored by Ping An, these causes including the collective job-hopping of the core team of the company's investment bank, repeated negative news of its underwriting projects, dramatic changes of the business of the companies that it sponsors after their IPOs, and its extensive management model.

In comparing the lists of IPO underwriters in the past two years, we can see that numerous securities traders, including renowned players like UBS, J.P. Morgan First Capital Securities, and Shenyin & Wanguo Securities, have disappeared in 2012. The 3 companies mentioned above underwrote 3, 5, and 3 IPOs respectively in 2011.

Besides, sponsor representatives who used to be greatly sought after are losing their prominence. "With the promulgation and implementation of new policies, such as two sponsor representatives exams annually, it is inevitable that the number of sponsor representatives would gradually become saturated", said people from investment banks. In early 2012, China Securities Regulatory Commission relaxed restriction on sponsor representatives' signature right, and formulated the reference line of new stock's PE Ratio. These new measures have quite significant impact on investment banks and enterprises applying for IPOs.

"From a deeper perspective, they should accelerate the systemic innovation of the capital market, strengthen the construction of basic systems, and change the model of dependence on chances", said He Qiang.

A piece of rather cheering news is that as the IPO market quiets down, the bonds underwriting market has heated up significantly. According to Wind Information's statistics, in order of underwriting amount, CITIC Securities underwrites 98 bonds, ranking first; China Development Bank Securities and Guotai Junan win the second and third places, underwriting 67 and 60 bonds respectively. In terms of underwriting income, there are 3 securities traders whose bonds underwriting incomes exceed their IPO underwriting incomes of the same period. Among these, China Development Bank Securities emerged as an unexpected winner of the bond underwriting business. In 2011, China Development Bank Securities underwrote only 6 bonds.

Speaking about the future, Xie Jijun, managing director of the corporate finance department of China Merchants Securities, said that in 2013 CMS would choose to underwrite some good IPO projects; besides, in the meantime of maintaining its IPO business, it would also increase investment in non-IPO business such as assets securitization, mergers, refinance, and bond underwriting, so as to increase its revenue.

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