2023 of waist brokers: The IPO business of many medium-sized investment banks is waiting to be "broken the ice", and some brokerages have not successfully sponsored any IPO in the past two years

Editorial Department of this journal丨Hui Kai

The continued downturn in the capital market has put pressure on the investment banking business of some small and medium-sized listed brokerages, and some brokerages have not sponsored a single IPO project for several consecutive years.

The performance of the primary market in 2023 has exceeded expectations, and the performance of some small and medium-sized listed securities firms and some boutique securities firms focusing on investment banking business has been significantly sluggish, and some have not had an IPO sponsorship business for two consecutive years, resulting in a general insurance agency team of dozens of people being "idle". Under pressure, a group of securities firms with flaws in their equity structure or small markets in their registered places have tried to break through the current predicament by introducing war investment, relocation, and change of ownership.

It is worth mentioning that some brokerages have also exposed many problems in compliance and risk control in the process of rapid development. Under the full registration system, the tightening of supervision has caused these brokerages to be heavily fined, and some projects in hand have been rehired by other sponsoring brokers, which has also affected their own performance.

A number of waist brokerage IPO sponsorship business to be "ice-breaking"

iFinD shows that among the more than 100 brokerages, excluding the situation of divesting the investment banking business to its professional underwriting sponsor company, many brokerages will not have a single IPO sponsorship business in 2023, and even more than 20 brokerages have zero IPO sponsorship and underwriting business volume since 2022, including some listed brokerages, state-owned background brokers, and brokerages that are positioned in boutique investment banks and have more insurance agents, such as Caida Securities, Huachuang Securities, Cinda Securities, Huajin Securities, Fed Securities, Huaxin Securities, Zhongtian Guofu Securities, Jianghai Securities, Century Securities, Zhongshan Securities, Chengtong Securities, etc. The IPO business volume has been zero for two consecutive years, which reflects the fierce competition in the IPO market at present; On the other hand, it also brings more pressure to the operation and personnel of brokers.

Investigate the reasons carefully, "every family has a scripture that is difficult to read". Although some of the above-mentioned brokerages have a certain scale in terms of volume, they may have less reserves of previous projects, resulting in no rice to cook now; Although some securities firms have a certain project reserve, under the regulatory guidance of strict IPO review and promotion of intermediaries to fully implement their own responsibilities, the IPO projects in hand are either withdrawn or rejected, or they are still in the IPO process.

For some brokerages with local backgrounds, the listing of affiliated companies under the province or parent company often has a greater chance of becoming a sponsor underwriting agency, such as Shaanxi Energy, an IPO company with the highest sponsorship and underwriting fees in 2023, has adopted a joint sponsorship mechanism, and Western Securities, which has a Shaanxi background, has been able to share this cake.

In contrast, although some local securities firms are in the IPO bonanza area, they have failed to "defend the territory and be responsible" in their business, and have not fully mobilized and utilized the resources of listed companies in the region. Taking Hebei Province as an example, iFinD shows that since 2022, 10 companies in Hebei have been successfully listed, but none of the sponsors have chosen Caida Securities, the only listed brokerage in Hebei Province. For example, Meibang Technology, which is registered in Shijiazhuang, chose CICC as the sponsor during its IPO; Huami New Materials chose Guorong Securities, a brokerage firm outside the province; Ruixing shares chose Huaxi Securities, whose "base" is in Sichuan.

According to the official website of the Securities Association of China, Caida Securities has 15 insurance agents, of which Liu Liping, the insurance agent, has signed for 6 projects. Due to the lack of strength at the project contracting end, these insurance agents fell into the embarrassment of "uselessness". It should be pointed out that most of the insurance agents with signing experience jumped from CICC and other leading brokerages in the past few years, and there is no new IPO signing resume within a few years after joining Caida Securities.

Caida Securities originally planned to raise 5 billion yuan, and the fundraising direction did not include investment banking business. In the same period, Nanjing Securities, which promoted private placement, mostly took investment banking business as the key fundraising direction. IPO companies in the province choose securities firms outside the province, and the investment direction of private placement does not pay attention to investment banking business, which reflects the "short board" of Caida Securities' investment banking business.

The background of shareholders is not a "golden signboard"

The performance of AMC's brokerage sponsorship business varies widely

In the past two years, there have not been many IPO projects in Guizhou Province, and only three companies have been listed: Century Hengtong, Anda Technology, and Zhenhua Fengguang. In the process of listing, none of the three companies chose two securities firms in Guizhou Province - Huachuang Securities, a listed brokerage, and Zhongtian Guofu Securities, which focuses on boutique investment banking positioning, but chose China Merchants Securities and other head investment banks. Although Hua Chuang Securities undertook the sponsorship of the IPO of Fuene Technology on the Science and Technology Innovation Board, in September 2023, the Shanghai Stock Exchange terminated the listing review of Fuene Technology. So far, Hua Chuang Securities, which has registered 55 insurance agents, has not had a single IPO project for two consecutive years.

The frequent listing failures of sponsored IPO projects have adversely affected the follow-up business of relevant investment banks, and some companies to be listed may change sponsoring securities firms when they hit the listing again. For example, in 2022, the IPO of Ruineng Shares GEM sponsored by Huachuang Securities failed, and in December 2023, Ruineng Shares restarted listing counseling again, and the counseling brokerage has been changed to Guosen Securities.

Not only local brokers, but also the background of central enterprises is no longer a golden signboard. Cinda Securities is the only newly listed brokerage company in 2023, and its major shareholder is Cinda Assets, one of the four major AMC companies in China, with nearly 20 insurance agents under the company, and the scale and ranking of the equity business of the investment banking department are in the middle of the industry. According to the information of the Securities Association of China, only 4 insurance agents under Cinda Securities have signing experience, and 14 have zero signing experience.

Cinda Securities' last IPO underwriting sponsor was Sanyou Lianzhong, which passed the meeting in August 2020 and went public in January 2021. After the Sanyou Lianzhong project, the sponsorship business of Cinda Securities was powerless. Although the major shareholder Cinda Assets also has some affiliated enterprises or shareholding companies with listing plans, such as the IPO of Chentai Technology (Cinda Assets holds 8.35% of the shares, which is the third largest shareholder), the sponsorship work is not inclined to Cinda Securities, and the IPO work has been launched twice, and the sponsors selected are Haitong Securities and Dongxing Securities. In October 2023, the Shenzhen Stock Exchange terminated the listing review of Chentai Technology.

It is understood that in the past two years, the regulator has guided AMC to return to the main business of non-performing disposal, and the pure market-oriented business is no longer the priority investment of Cinda's asset resources. However, not all AMC brokerages of the investment banks are sluggish, such as the total scale of Orient Assets, which is inferior to Cinda Assets, and its Dongxing Securities IPO underwriting sponsorship scale ranking is very good, although the recent *ST Zeda Science and Technology Innovation Board IPO fraud has a certain impact on Dongxing Securities' sponsorship business, but on the whole, the impact on Dongxing Securities' sponsorship business is still limited.

Some local state-owned securities firms have been fined for compliance issues

The original sponsor project was successfully listed after changing the investment bank

Huajin Securities is a subsidiary of Zhuhai Huafa Investment Holding Co., Ltd., a state-owned enterprise in Zhuhai, and has not had IPO business in the past two years. Huajin Securities has made a lot of efforts at the personnel level and introduced a number of elite soldiers, such as Yan Wenbo, former vice president of Guohai Securities and veteran investment banker, as the president of Huajin Securities in 2021.

In recent years, Huajin Securities has a number of IPO sponsorship businesses in hand, which have been accepted by the exchange, such as wavelength optoelectronics. In September 2022, Wavelength Optoelectronics successfully passed the meeting, but failed to obtain the marketing registration approval in time. At the end of 2022, the "Interim Provisions on the Application and Recommendation of the Issuance and Listing of GEM Enterprises (Revised in 2022)" was officially announced, and the positioning of Wavelength Optoelectronics on the GEM and several scientific and technological innovation R&D indicators were suspected of being "stuck in the position", coupled with the implementation of the "comprehensive registration system" in February 2023, Wavelength Optoelectronics once again received a new round of inquiry letters from the exchange - but the sponsor brokerage at this time has been replaced by Huatai United Securities. With the assistance of Huatai United, in August 2023, Wavelength Optoelectronics was successfully listed.

In addition to external factors, the most influential factor may be the results of the special inspection of the internal control and integrity of 8 brokerage investment banks announced by the China Securities Regulatory Commission in November 2022.

It is worth mentioning that when the listing of securities companies was in full swing in the past few years, Huajin Securities also launched IPO counseling in 2020, but has not yet officially submitted a prospectus. In the past two years, the performance of the brokerage industry has fluctuated, and the pace of listing has slowed down, and it remains to be seen whether it can be listed.

Relocation, introduction of war investment, change of ownership

The results of the waist brokerage breakthrough are to be tested

Fed Securities, which was also a state-owned securities firm in Guangdong, moved its registered address to Laoshan District, Qingdao in 2021 after introducing Qingdao state-owned assets at the shareholder level. At that time, all walks of life expected that the Federal Reserve Securities would carry out all-round cooperation with Qingdao enterprises in bond issuance, listing, investment promotion and other aspects. However, for more than two years now, the IPO sponsorship business of Fed Securities has not yet "broken the ice". In December 2023, the application of Wen Duoli, a NEEQ company in Dezhou, Shandong Province, to the Beijing Stock Exchange was accepted, and the Federal Reserve Securities served as a counseling broker.

New Era Securities, which originally had the background of "Tomorrow Department", will change its major shareholder to Chengtong Group, a central enterprise, in 2022 after the completion of risk mitigation, and its name will also be changed to Chengtong Securities. Over the years, the company has not sponsored IPO projects, during which the IPO policy has undergone major changes from the review system → the registration system. Chengtong Securities' insurance agency team has no experience in initial public offering projects for many years, and it is obviously difficult to restart business in the future.

In the early years, the company vigorously developed investment banking business, and the number of insurance agents exceeded 30 people, but in the face of the objective background of more large securities firms in the region, Century Securities' investment banking business has declined in recent years, and there has been no initial sponsorship project for several consecutive years.

Previously, due to the good revenue of local brokers, they are generally large taxpayers in the jurisdiction, and there is a certain difficulty in being acquired and moved out, but now the sluggish performance of the investment banking business has dragged down the overall performance of brokerages. According to iFinD data, the total underwriting and sponsorship fees of brokers' initial offering business will exceed 28.8 billion yuan in 2022 and 21.2 billion yuan in 2023, a decrease of more than a quarter.

Specifically, some waist brokerages have already suffered losses in the first half of 2023, such as the net profit of the Federal Reserve Securities in the first half of 2021~2023 is 4.16 million yuan, -89.71 million yuan, and -113 million yuan respectively, and the loss continues to increase; Huajin Securities made a profit of 14.56 million yuan in the first half of 2022, and its revenue declined in the first half of 2023, and its net profit turned to a loss of 38.74 million yuan.

In 2024, how should small and medium-sized brokerages break the situation, and can the sponsorship business of the investment banking department be implemented? This journal will continue to pay attention.

(This article has been published in the Securities Market Weekly on December 30, 2023, with the original title "A number of small and medium-sized brokerage firms IPO sponsorship business to "break the ice", and some brokerages have not successfully sponsored IPO in the past two years.) The individual stocks mentioned in the article are only for analysis and do not make investment advice. ）