Chinese security houses continue to perform strongly in Asian capital markets, with Haitong International Securities leveraging off its diversified product platform and its strong success as an underwriter of initial public offerings to win market share.
“The IPO flow brings both primary and secondary markets business to Haitong International,” says Duke Du, head of retail sales and equity derivatives. “When the company is listed you have the primary market – the IPO, the institutional placement. After that the investor might switch the investment and then it becomes our secondary business. It’s a natural flow from the upstream to the downstream.”
In 2016, Haitong International participated in 23 IPO deals in Hong Kong, more than any other financial services provider.
One standout transaction for the house was its role on the public offering of Postal Savings Bank of China, which raised $7.4 billion. Haitong International arranged roadshow presentations in London, New York and Hong Kong. The securities house finished the public offering with exclusive orders, covering around 60% of the Hong Kong offering and 23% of the final total subscription.
Haitong International’s success at winning business in the IPO world has helped the securities house strengthen its business in other areas, particularly in terms of servicing private bank and wealth management clients.
“Consider the business owner who lists his company in Hong Kong and becomes rich instantly. He will want to open accounts to help manage his money and his partners may want to do this, too. From this single IPO project, we can attract perhaps 10 or 15 new wealth management clients,” says Du.
This is not the only synergy that Haitong International can capitalise on. Once an IPO has been successfully executed, a secondary listing will often follow, allowing shareholders to raise new financing; Haitong International’s equities team is ready to offer support. Then there may also be the need for a publicly listed company to restructure itself in order to provide the most optimal financing, requiring debt finance on top of equity structuring – all of which can be provided by Haitong International.
“From IPO to wealth management, from the primary market to the secondary market, from equity finance to debt finance, we have things covered,” says Du. “At any stage of the business clients can find a component of this value chain to get benefit: that is the secret of how we create value for clients and how we can make money and build our leading position in the market.”
Haitong currently serves more than 200,000 global institutional and individual investors. In 2016, despite market volatilities, the securities house was able to add 6,000 new accounts. According to the company’s interim accounts, which were released at the end of June, Haitong International’s pre-tax profits were up 5.74% compared to the six months at the start of 2016.
As a securities broker Haitong International says its fixed-income products have increased 50% based on last year’s flow and it has seen significant growth from its retail client base. The poor performance of the equity markets in the first half of the year drove clients to fixed-income products. Du says that in order to be a successful brokerage firm you have to have your own product flow and deal flow.
“As a traditional brokerage house the majority of revenue and products are equity trading and cash or derivative trading but if you want to be a premier wealth management house then the products have to be more diversified including fixed-income instruments, insurance, private funds and other alternative products that fit the risk appetite of the clients,” he says.
Looking ahead Haitong International is set to continue growing and after launching its warrants business last year, it is already ranked within the top 10 issuers in Hong Kong by volume, according to Bloomberg data. At a time when many of Haitong’s competitors are understood to be retreating from the warrants market due to the fierce competition and tight margins, the securities house says it is making money.
The reputation of Haitong International in Hong Kong and China, combined with its expansive product suite and attractive pricing, means that many investors seek out this securities house ahead of others.
The head of sales at one private bank says: “Many of our high-end customers appreciate the fact that Haitong can offer its structured products at a much better price than its competitors. These customers have investments in different countries around the world and they have tried different securities. But they consider Haitong to be the best, so we have to fulfil that demand.”