In response to the slowdown in equity financing, securities firms promote the diversification of investment banking business structure

Picture Worm Creative/Photo courtesy of Ma Jing/Tabulation Peng Chunxia/Cartography

Securities Times reporter Ma Jing Liu Yiwen

At present, equity financing is slowing down in stages, and the investment banking business of securities companies has been affected to varying degrees, and how to deal with it is a problem that securities companies need to solve.

"Take the current market environment as a valuable opportunity to strengthen the foundation, repair internal strength, and adjust the direction, and take on the responsibility of the gatekeeper of the capital market in a down-to-earth manner. Recently, the relevant person in charge of Shenwan Hongyuan Securities said in an interview with a reporter from the Securities Times. CITIC Securities and Minsheng Securities also hold similar views.

The Securities Times reporter found through interviews and combing the content of the performance briefings of various leading brokerages that brokerages are gearing up to seek diversified business layouts, such as aiming at state-owned enterprise mergers and acquisitions, industry-finance synergy, and listing on the New Third Board. At the same time, investment banks should not only be "investment banks", but also extend the service chain, strengthen internal coordination, and become a comprehensive financial service provider.

In the long run, securities firms are not pessimistic, believing that the investment banking business is still full of opportunities, and should keep pace with the times, closely follow the regulatory strategic guidance, and make corresponding adjustments to business priorities and resource allocation.

In the long run, the opportunities still outweigh the challenges

Since the CSRC's "827" new policy proposed to slow down the initial public offering (IPO) in stages last year, the equity financing business has been tightened, the number of declarations has decreased, and the pace of review and issuance has slowed down. Wind data shows that 25 of the 31 listed brokerages that have disclosed their 2023 report cards have seen a decline in investment banking revenue compared with the previous year.

Since the beginning of this year, the downward trend of equity financing business has not improved significantly. According to the statistics of the issuance date, the scale of equity financing in the first quarter of 2024 decreased by 75% year-on-year, and the scale of funds raised by IPOs and refinancing of listed companies both fell by more than 70%.

"The current environment has put forward higher requirements for the high-quality development of investment banking business in the short term, and has also brought certain pressure to the transformation and upgrading of investment banking equity business lines, but in the long run, the opportunities still outweigh the challenges. The relevant person in charge of Shenwan Hongyuan Securities told the Securities Times reporter.

Minsheng Securities mentioned in an interview with reporters that the policy goal of the new "National Nine Articles" is to improve the quality of listed companies from the source and guide the market to develop and optimize in a benign direction, and various regulatory policies put forward specific measures from all aspects, which is conducive to the construction of a long-term and healthy development of the capital market.

The relevant person in charge of Shenwan Hongyuan Securities also further mentioned that the new "National Nine Articles" have clarified the future development tasks of China's capital market, and investment banks should use this as a blueprint to strengthen investment banks, continuously deepen their understanding of the spirit of the current policy, update internal systems and due diligence guidelines with reference to new regulatory requirements, and start from the interests of investors. It is necessary to have a deeper understanding of the issuer's business structure and the characteristics of the industry in which it operates, identify excellent asset targets, tap the value of enterprises, and screen out high-quality enterprises with both "approvability" and "investability".

At the recent performance briefing, Guotai Junan, Haitong Securities and other securities firms also mentioned similar views. Guotai Junan said that strictly controlling the access to issuance and listing, and coordinating the balanced development of the first and second levels, does not mean that the investment banking business is stagnant, and the focus of the capital market to serve the high-quality development of the economy is still to help the development of new productive forces and the construction of a modern industrial system. In the long run, with the comprehensive and strict strengthening of financial supervision, the quality of listed companies will be further improved. The level of professional services of intermediaries is also constantly improving, and the capital market will form a more virtuous circle.

Diversify business structure

In the new market environment, where should investment banks look for business increments? Generally speaking, developing the debt market, developing the Beijing Stock Exchange market, focusing on mergers and acquisitions, and accelerating overseas layout are the high-frequency words mentioned by securities companies and investment banks.

CITIC Securities said that it will provide in-depth professional services for comprehensive debt financing, strengthen the development of strategic customers such as central enterprises, state-owned enterprises and financial institutions, as well as customers in strategic emerging industries, actively expand overseas customers in combination with the national "Belt and Road" initiative, and strive to promote the development of incremental bond business. At the same time, we will continue to promote the innovation of debt financing, increase investment in policy-oriented science and technology innovation bonds, green bonds, and rural revitalization bonds, and work together to build a complete business ecology from Pre-REITs to public REITs (real estate investment trusts), so as to serve the construction of a multi-level REITs market.

In terms of mergers and acquisitions, several brokerages have their own focuses. Huatai Securities said that it is necessary to go deep into the industrial integration opportunities of leading enterprises in key industries, actively pay attention to the opportunities for the transfer of control of listed companies, seize the opportunity of the restructuring of state-owned enterprises, and promote the state-controlled listed companies to become better and stronger. Guotai Junan said that it will focus on mergers and acquisitions and restructuring business and bond financing aimed at industrial investment banks. Haitong Securities said that it is necessary to firmly seize the opportunities of upstream and downstream mergers and acquisitions in the industry encouraged by the current regulation. China Merchants Securities mentioned that the M&A business will focus on strengthening industry-finance synergy and industrial mergers and acquisitions with China Merchants Group, helping the group to lay out emerging industries and strengthen the linkage and synergy with the financial sector of China Merchants Group.

In terms of overseas business expansion, CITIC Securities said that it will strengthen equity financing in Hong Kong stocks, GDR (Global Depositary Receipts) and equity financing in overseas markets such as Southeast Asia, as well as debt business such as Chinese-funded offshore bonds and US dollar bonds in overseas markets such as Southeast Asia. In addition, it also includes the development of outbound mergers and acquisitions of Chinese-funded enterprises, inbound mergers and acquisitions of foreign-funded enterprises, industrial mergers and acquisitions of overseas listed companies, and privatization, so as to continuously enhance international competitiveness.

Build the Beijing Stock Exchange market

Specialized, differentiated services

In addition to the above directions, almost every brokerage has stated that it wants to tap into the market opportunities of the Beijing Stock Exchange.

"The Beijing Stock Exchange is positioned to build the 'main position' of serving 'innovative small and medium-sized enterprises', and the target positioning of the 'main position' means that the Beijing Stock Exchange is not a 'small market', but a 'big market' that is linked with the primary private equity market, the local regional equity market, the New Third Board, and the Shanghai and Shenzhen Stock Exchanges, and supports the innovation and development of small and medium-sized enterprises in an all-round, full-chain and full-life cycle. Shenwan Hongyuan Securities introduced.

Based on this, Shenwan Hongyuan Securities said that the company's long-term strategic layout in the business line of the Beijing Stock Exchange is not limited to the Beijing Stock Exchange market itself, but a set of comprehensive markets covering primary equity investment, regional equity markets, the New Third Board, the Beijing Stock Exchange, the Shanghai and Shenzhen Stock Exchanges, and a system that links the whole chain of business of "investment + investment banking + research". Shenwan Hongyuan Securities has set up special departments in investment banking, research and other lines to provide in-depth services to listed companies on the Beijing Stock Exchange. At the same time, in terms of breadth, more attention will be paid to the listing and cultivation of specialized, special and new small and medium-sized enterprises, extending the tentacles of capital market services to "earlier, smaller and newer" small and medium-sized enterprises, and providing some inclusive services.

CITIC Securities and Minsheng Securities also mentioned a similar expression of the "investment + investment banking + investment research" strategy. In addition, the two brokerages also emphasized the need to focus more on serving strategic emerging industries and future industries.

CITIC Securities said that in recent years, the company has taken the business of the Beijing Stock Exchange as an important strategic direction, continued to strengthen the market research and customer service of the Beijing Stock Exchange, focused on the fields of scientific and technological equipment manufacturing, new materials, national defense and military industry, new generation information technology and medical health, and explored and cultivated more high-quality specialized and special new enterprises with sustainable operation capabilities and investment value, so as to better grasp the value of issuers and the needs of investors.

During the trough period, you should practice basic skills

In the past 10 years, investment banks have also encountered several rounds of cyclical fluctuations, and once the market heat returns, the prospect is promising. The Securities Times reporter noted that in addition to adjusting the business focus according to the situation, a number of brokerages said that they should practice basic skills in personnel organization, technical support, and project reserves.

For example, Minsheng Securities and Guotai Junan both mentioned the need to strengthen the construction of digital investment banks. Haitong Securities said that it is necessary to dig deep and develop key regional and industry markets, increase market expansion efforts, and reserve high-quality and high-quality projects.

China Merchants Securities said that it will continue to dynamically optimize and adjust the structure of the team according to changes in the market environment and improve the efficiency of the team.

It is worth mentioning that a number of securities firms have invariably emphasized the need to strengthen compliance risk control and implement the responsibilities of "gatekeepers". For example, Everbright Securities said that it is necessary to strengthen prediction, grasp the key, and control risks. By strengthening the risk management of the whole process of the project, the risk points at different stages of the whole project life cycle are controlled, the screening, prevention and analysis of the project are strengthened, and the due diligence and continuous supervision procedures are strictly implemented, and the due diligence and supervision work is standardized.

Shenwan Hongyuan Securities believes that in accordance with regulatory requirements, it will strengthen various internal controls, improve the efficiency of business execution, and reduce costs, including the possibility of appropriate personnel adjustments to adapt to changes in business volume. At the same time, we pay attention to improving the skills and professional knowledge of employees, pay attention to the talent training of the team, and maintain the stability and cohesion of the team. All of these contribute to the resilience of the business as a whole.