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Hiroaki Katsura
On the first trading day in 2023, the Shanghai and Shenzhen stock markets had a “good start”, and most sectors also rose. However, the brokerage sector closed with a decline. Although the tourism and hotel sectors also fell that day, they had a strong rise before the year, and the recent performance of the brokerage sector has been relatively weak. It stands to reason that it should rebound at a low level at this time, but the reality is not. in this way.
The reason why the brokerage sector fell on the first trading day of the new year was related to a certain securities company’s announcement a year ago that it would implement a rights issue of no more than 28 billion yuan. This news caused the company’s share price to plummet by nearly 7% in one day, and its market value lost nearly 8 billion yuan. Yuan. Coincidentally, almost a year ago, a leading brokerage firm also announced that it would implement a rights issue with a total amount of 28 billion yuan. This allotment plan also caused the stock price to fall, so that it pulled four negative lines in a row. Because of this precedent, the market has always been very controversial about the allotment of securities companies.
Allotment is a form of company refinancing, and its characteristic is that it is carried out for old shareholders, usually with a certain discount on the price. For the shareholders participating in the allotment, it is equivalent to increasing their holdings of some stocks at a lower price, and if they do not participate in the allotment, the original shareholders’ equity will be diluted to a certain extent.
Generally speaking, if the market is in a strong state and the stock price keeps rising, allotment is more popular at this time; but if the market is weak and stocks keep falling, allotment is likely to attract investors’ disgust.
In addition, the use of allotment for financing will have certain restrictions on the number according to regulations, and at the same time, there will be certain requirements on the company’s financial indicators. Based on the above restrictive factors, private placement has become the main way for listed companies to refinance in the past ten years, while allotment is rarely used. Interestingly, most of the few allotments of shares recently were carried out by brokerage firms.
Why are brokers keen on allotment of shares?
In recent years, the stock prices of the brokerage sector have been relatively sluggish, and there are many brokerages that have fallen below their net assets (like the brokerage that proposed a rights issue a year ago, the current market price is only equivalent to about 75% of their net assets). It has also fallen a lot before, which is obviously unattractive to institutional investors. It is difficult to find corresponding participants in the private placement plan proposed by the brokerage. If only major shareholders pay to participate, the private placement cannot be carried out.
In contrast, the issue price of allotment shares can circumvent the restriction that it should not be lower than the net assets. At the same time, other shareholders have to follow the major shareholders to participate in order not to dilute their equity. Even if someone sells the stock before the allotment, someone will buy it at the same time. Therefore, as long as the allotment plan is approved, this refinancing operation can basically be completed.
Of course, after the allotment plan is announced, the selling pressure on the stock prices of the corresponding companies will be relatively large. The securities business is an asset-heavy business. Due to various reasons, the use of capital leverage by securities companies is also relatively restricted. After several years of great development, securities firms are generally faced with the dilemma of insufficient capital. In the past few years, they mainly raised funds by issuing H shares. They still made such choices.
It is worth mentioning that most of the securities firms that intend to issue shares are still in good business conditions, and their allotment is indeed in need of business development. However, in the current market environment, it is indeed difficult for investors to widely accept the issue of allotment. agree.
Therefore, people see such a paradox: on the one hand, business development needs to increase capital, and securities companies have an urgent need for refinancing; on the other hand, due to market and system factors, the current private placement model is being implemented However, the relatively operable allotment has not responded well to the market, which has a negative impact on the stock price and even the company’s image.
Recently, the regulatory authorities have also expressed concern about the frequent allotment of shares by securities companies, and pointed out that it is necessary to balance the interests of all parties. Since there are many voices of opposition from small and medium-sized investors, whether the allotment policy will be adjusted in the future is also the market’s concern.
What needs to be pointed out here is that the paradox of stock placement by securities firms is essentially a product of deep-seated contradictions in the market and the result of an imbalance between corporate value and price. Develop ideas to resolve. Otherwise, it will be difficult for securities companies to carry out refinancing smoothly, and the stock price may become lower and lower, which is not good for their own development or for the development of the entire securities market.
Disclaimer: The Securities Times strives for truthful and accurate information, and the content mentioned in the article is for reference only and does not constitute substantive investment advice, so operate at your own risk
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