Some securities firms struggling in first half

Facing tough competition from banks, some of the previously strong securities firms now look like prime targets for government-ordered mergers and acquisitions this year

Some securities firms struggling in first half
China wants to build super-powerful brokerages, few in number, rather than the hodge podge it has at present. Photo: AFP. 

(ATF) On the evening of July 21, the Securities Association of China released statistics on the bond underwriting business of securities companies in the first half of this year.

Some of these firms, notably CITIC Securities and CITIC Industrial, did well. But because bond underwriting is increasingly becoming a business that banks want to do, enhanced by the cool economic climate, some of the previously mighty securities firms now look like prime targets for government-ordered mergers and acquisitions this year. China wants to build super-powerful brokerages, few in number, rather than the hodge podge it has at present.

Some 65 securities companies participated in local government bonds with a total value of 181.48 billion yuan, a sum that was 48.8% more than the same period last year. About half of these (37) companies were lead underwriters of green corporate bonds or green asset securitisation product managers on the Shanghai and Shenzhen stock markets, who underwrote and issued 40 products, with a total amount of 44.87 billion yuan, a year-on-year decrease of 13.3%.

At the same time, the bond business rankings of various brokerage firms have also changed. CITIC Securities, which won bids for local bonds worth 31.74 billion yuan, ranked first. Guotai Junan arranged local bonds valued at 12.52 billion yuan in the first half, but was behind the top five in local bonds. Haitong Securities lagged behind in the lead underwriting of green bonds, as the amount of underwriting issuance dropped by 48.5%.

But the amount of underwriting of local bonds awarded to various brokerages increased significantly in the first half compared with the same period last year. According to data from the China Securities Association, 65 securities companies participated in local government bonds with a total value of more than 270 billion yuan. Some 21 regions were involved. In the same period last year, 64 companies participated in local government bonds to a total of 181.478 billion yuan, spread across 25 regions.

As said, CITIC Securities won 31.74 billion yuan worth local bonds in the first half, which was 36.5% more than the same period last year. Three other securities firms – Orient Securities, CITIC Construction Investment and Huatai Securities – also won more than 10 local bond projects totalling 15 billion yuan. And Shenwan Hongyuan won bids for local bonds worth 13.9 billion yuan, a year-on-year increase of 86.4%.

It is worth noting that Guotai Junan, which ranked fourth in the first half of 2019, fell behind the top five this year. In the first half of 2019, the company won bids for 12.52 billion yuan in local bonds, compared with 10.82 billion yuan in the same period this year, a year-on-year decrease of 13.5%, which saw it drop to sixth in the industry.

Flood of local gov't bonds in January, then May

The pace at which local government bonds were issued increased significantly in the first half. Huang Weiping, chief analyst of Industrial Securities' fixed income, told China Securities News network that in November 2019, the Ministry of Finance issued some new special debt quotas worth 1 trillion yuan. But only local bonds were available in January 2020, when the coronavirus erupted. However, the total of 785 billion yuan, was a year-on-year increase of nearly 88%.

On May 6, the executive of the State Council proposed that “on the basis of the 1.29 trillion yuan of local government special bonds issued at the beginning of the year, another 1 trillion yuan of special bonds will be issued in advance according to procedures – to complete the issuance by the end of May." So, local bond issuance in May again increased in volume, and the issuance of local government bonds in a single month exceeded 1.3 trillion yuan.

In the first half of this year, the quotas for securities firms to participate in the underwriting of green bonds were slightly reduced compared with the same period last year.

Green bonds

According to data from the China Securities Association, 37 securities firms were lead green debt underwriters or green asset securitisation product managers on the Shanghai and Shenzhen Stock Exchange markets, underwriting and issuing 40 products, with a total value of 44.87 billion yuan, a slight decrease from the same period last year.

Soochow (Suzhou) Securities ranked first in the number of green bonds (and asset securitisation products) as lead underwriters (or managers). Three other companies – CITIC Securities, CITIC Construction Investment and Shengang Securities – issued large amounts of green bonds.

In March 2017, the regulatory authorities issued the "Guiding Opinions on Supporting the Development of Green Bonds", which set out principles for issuers of green corporate bonds, capital investment, information disclosure, and related management regulations and supporting measures. This was a bid to link the performance of brokerages with classification evaluations.

But there are also leading securities firms that are slightly behind in the lead underwriting of green bonds. In the first half of 2020, Haitong Securities underwriters, ranked 24th in the industry. 

In 2016, regulatory authorities began to vigorously promote the pilot projects of innovative and entrepreneurial corporate bonds ("double entrepreneurship bonds") in order to broaden the financing channels for small and medium-sized enterprises.

In the first half of this year, the overall number of double-enterprise bonds rose sharply. A total of 11 securities companies underwrote and issued 11 innovative and entrepreneurial corporate bonds with a total amount of 5.9 billion yuan. This far exceeded the same period last year, when only four companies underwrote and issued six innovative and entrepreneurial corporate bonds with a total value of 200 million yuan.