Bohai Securities was suddenly put on record for IPO, adding more variables

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Source: China Business Daily

Our reporter Luo Ji reports from Beijing

The "strict supervision storm" of securities firms is coming.

A few days ago, Bohai Securities Co., Ltd. (hereinafter referred to as "Bohai Securities") announced that it had received the Notification of Filing from China Securities Regulatory Commission (hereinafter referred to as "CSRC"). In accordance with relevant laws and regulations, the CSRC decided to file a case against Bohai Securities due to the suspected violation of laws and regulations in financial advisory business.

Bohai Securities has been preparing for IPO for a long time. At present, the issuance review information of Shanghai Stock Exchange (hereinafter referred to as "SSE") shows that its IPO application has been accepted, and the review status is "inquired". At this time, the case was suddenly filed, and Bohai Securities immediately became the focus of the market.

Bohai Securities said: "At present, the company's business situation is normal, and the event has no adverse impact on the company's solvency. The company will actively cooperate with the relevant work of the CSRC, and strictly comply with the regulatory requirements to perform the obligation of information disclosure." However, due to the silence during the investigation, Bohai Securities failed to respond to the relevant situation regarding the details and impact of the filing.

　　 Financial advisory business involved

The specific contents of the Notification of Case Filing show that Bohai Securities has been registered due to suspected violations of laws and regulations in financial advisory business, but the announcement is not clear about the specific items and contents of suspected violations. For a while, the financial advisory business of Bohai Securities was also under the spotlight and magnifying glass.

According to its prospectus (application draft), the financial advisory business of Bohai Securities mainly includes providing analysis, consultation, planning and other advisory services in various financing, financial arrangements, mergers and acquisitions, asset restructuring and other aspects, as well as related businesses such as listing on the NEEQ and continuous supervision.

From the perspective of business income, among the subdivided lines of Bohai Securities Investment Bank, the income elasticity of financial advisory business is relatively large. According to the 2023 annual report data, in 2023 and 2022, the handling fees and commission income of financial advisers of Bohai Securities reached 110 million yuan and 111 million yuan respectively, far exceeding the securities underwriting and recommendation business in the same period. According to the application draft of the Prospectus of Bohai Securities, this situation also occurred in 2019. In 2019, the income from handling fees and commissions of financial advisers of Bohai Securities reached 437 million yuan, while the income from securities underwriting business in the same period was 73.6271 million yuan.

It is worth noting that this situation is not a common phenomenon in the industry. Compared with comparable brokers in the same industry, it also has certain particularity. The reason for this difference lies in the differentiated layout of Bohai Securities investment banking business as a small and medium-sized securities firm.

Taking 2019, where the income structure is significantly different, as an example, the operating income of Bohai Securities Investment Banking accounted for 15.33% and the operating profit accounted for 27.17%. Comparable brokers in the same industry with Bohai Securities at that time（ Nanjing Securities 、 Southwest Securities 、 Shanxi Securities 、 Guohai Securities 、 First Entrepreneurship and Huaan Securities ）The operating income of investment banking business accounted for 5.9% to 13.72%, and the operating profit accounted for 3.03% to 16.78%.

It can be seen that the proportion of current investment banking revenue and operating profit of Bohai Securities is higher than that of comparable companies in the same industry. According to the prospectus, the main reason for this difference is that Bohai, as a financial consultant, has completed the financial advisory projects of the maturity resale and resale of several bonds such as "160000 02" and "160000 03", and has collected about 427 million yuan of financial advisory fees.

As the details of the above case were not disclosed, there were many speculations in the market, and the distinctive business layout of Bohai Securities was also questioned.

In fact, there were not many bond resale and resale businesses in the market earlier. In 2019 and 2020, the Shanghai and Shenzhen Stock Exchanges successively issued notices to regulate the bond resale business, making relevant requirements for the resale process. With the gradual improvement of supporting systems, cases of resale and resale increased rapidly.

An insider mentioned to the reporter: "In the bond maturity resale and resale business, the 'operable space' of the securities companies is not large. At present, there are few serious violations related to the securities companies in the market."

　　 Seven year long run of IPO

At this time, the case was filed by the CSRC. For Bohai Securities, which has been preparing for IPO for seven years, the IPO path may add more variables.

In October 2016, Bohai Securities and Everbright Securities (Rights protection) A listing guidance agreement was signed, during which the company went through a lot of work such as corporate governance, rectification and improvement of internal control, training of directors, supervisors and senior executives. In December 2021, Bohai Securities submitted its IPO application. In May 2022, the CSRC put forward 42 feedback opinions on the application documents, including normative issues, information disclosure issues, and issues related to financial and accounting materials, specifically concerning whether there are major risks in the investment banking business and whether the changes of directors and senior executives in the past three years constitute major changes. On June 6 of the same year, the CSRC again disclosed the application draft of the prospectus for the initial public offering of Bohai Securities, which accelerated its IPO process and entered the pre disclosure update stage.

In 2023, the comprehensive registration system will be implemented. At that time, the IPO projects accepted by the CSRC were successively "translated" to the Shanghai and Shenzhen Stock Exchanges for registration review. Bohai Securities is one of them. According to the regulations, after the application for the main board project is accepted, the Shanghai and Shenzhen Stock Exchanges will, based on its previous audit order and existing audit results, promote the audit related work in accordance with the registration system audit procedures and rules.

At present, the review information of the issuance of the Shanghai Stock Exchange shows that the IPO of Bohai Securities was accepted on March 1, 2023, and the inquiry was made on March 17. The review was suspended on March 31 because the financial information had expired. The review was resumed after the information was updated on June 30 of the same year. At present, the audit status is still "inquired", which is far from the stage of the review meeting of the Municipal Party Committee.

In this case, what impact does the case filing have on the IPO path of Bohai Securities?

Cui Wenguan, the co-founder of Sichuan Angong Law Firm, who has long focused on the securities field, pointed out that "in accordance with the Administrative Measures for the Registration of Initial Public Offerings, the Securities Law, and the Listing Rules of Shanghai Stock Exchange (revised in April 2024) As well as relevant cases since the comprehensive registration system and other relevant regulations, the IPO process of the proposed enterprises may be blocked if they are investigated during the reporting period, which does not rule out that the IPO process of Bohai Securities will be suspended or suspended. If the investigation results show that there are serious violations of laws and regulations and the issuer is severely punished, it may have a significant impact on the issuer. However, the specific situation depends on the investigation results of the Securities Commission. If the circumstances are relatively minor, Bohai Securities can 'pass the customs' through rectification; If the circumstances are serious, the IPO of Bohai Securities will be greatly affected. "

　　 Widening gap with comparable companies

The twists and turns of the IPO road also affected the development speed of Bohai Securities to a certain extent.

According to the first version of the prospectus (application draft) of Bohai Securities in 2021, the comparable companies in the same industry selected by Bohai Securities are Tianfeng Securities , Nanjing Securities, Southwest Securities, Shanxi Securities, Guohai Securities, First Venture, Hua'an Securities and Hongta Securities 。

At that time, the asset scale of these eight securities firms ranged from 81.405 billion yuan to 38.318 billion yuan, with the arithmetic average of 59.717 billion yuan, the median of 60.532 billion yuan, and the operating revenue of 5.585 billion yuan to 2.365 billion yuan, with the arithmetic average of 3.723 billion yuan, the median of 3.349 billion yuan. The asset scale of Bohai Securities was RMB 61.028 billion, slightly exceeding the arithmetic mean and median of comparable peers, and the operating income was RMB 2.956 billion, slightly lower than the arithmetic mean and median of comparable peers.

However, by 2023, the scale of the above comparable interbank assets will be between 99.548 billion yuan and 47 billion yuan, with the arithmetic average of 70.237 billion yuan and the median of 73.663 billion yuan, an average increase of 10 billion yuan over the scale in 2020; The operating revenue ranged from 4.188 billion yuan to 1.201 billion yuan, with the arithmetic mean of 2.904 billion yuan and the median of 2.968 billion yuan.

By 2023, the asset scale of Bohai Securities will only increase by 2 billion yuan, reaching 63.01 billion yuan, a 10 billion level gap from the median; The operating income is 2.1 billion yuan, which also shows a widening gap compared with 2020.

As an old securities firm established under the wave of "separation of credit and securities", Bohai Securities has gradually developed from a regional securities company into a comprehensive securities company with differentiated business characteristics and nationwide layout after years of efforts. At the same time, as an important financial asset under the actual control of Tianjin State owned Assets Supervision and Administration Commission and controlled by Tianjin Teda International Holdings (Group) Co., Ltd., Bohai Securities also has the development requirements of deep collaboration with Bohai Bank, Northern Trust, Bohai Property Insurance and other institutions to make contributions to the strategic positioning of Tianjin Financial Innovation and Operation Demonstration Zone and Reform and Opening up Pilot Zone.

Against this background, how will Bohai Securities supplement "ammunition" after its IPO is blocked, and how will it seek development with limited financial support? In fact, at present, there are 6 brokers queuing for A-share IPO, and all of them are small and medium-sized. As these small and medium-sized securities firms who have completed listing guidance and have good corporate governance, how can they use the limited "ammunition supply" to strive for development opportunities in the fierce competition while preparing for IPO?

Shen Meng, director of Xiangsong Capital, said: "Even if the case has not been filed, it is unlikely that these small and medium-sized brokers queuing for IPO will complete their IPO in the near future. The unlisted brokers should also consider how to strive for development in the current environment. Even if they are unlisted, the expansion of their own capital can still be financed through equity or debt. Whether these channels can be used smoothly and efficiently depends more on the quality of the company. Only by constantly expanding the differentiated competitive advantage can small and medium-sized securities companies have room for development. "

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