HK brokerage Guotai Junan aims to raise up to HK$3.7bn via rights issue

Maria Nikolova

The company proposes to raise gross proceeds of up to HK$3,729 million before expenses by way of a rights issue of rights shares to qualifying shareholders.

Hong Kong-based online trading company Guotai Junan International Hold. Limited (HKG:1788) aims to raise gross proceeds of up to approximately HK$3,729 million before expenses by way of a rights issue of rights shares to qualifying shareholders on the basis of one rights share for every three existing shares held on the record Date at the subscription Price of HK$1.45 per rights share.

The minimum and maximum net proceeds from the Rights Issue to be received by the company are expected to be approximately HK$2,779.56 million and HK$3,725.93 million respectively. The net price per Rights Share upon full acceptance of the relevant provisional allotment of Rights Shares will be approximately HK$1.449.

The company currently intends to use the net proceeds from the Rights Issue for the following purposes:

  • approximately 33% of the net proceeds are set to be used for loans and advances to customers,
  • approximately 33% of the net proceeds are set to be used for market making and investment in debt securities,
  • approximately 15% of the net proceeds will be used for debt repayment,
  • approximately 10% of the net proceeds will be used for the Group’s general working capital which includes expenses on professional advisory services, trading and back office system enhancement, regulatory compliance and risk control upgrading, general administrative expenses etc., and
  • approximately 9% of the net proceeds will be used for IT infrastructure and regional expansion in Southeast Asia.

Regarding IT infrastructure and regional expansion in Southeast Asia, the company explains that it has established subsidiaries in Singapore since 2015 and successively commenced businesses in asset management, securities brokerage, fixed income and wealth management in the Singapore market. The net proceeds from the Rights Issue to be used on this category will provide the Group with the necessary funding resources for further expansion of businesses in Singapore, for instance, for upgrading of trading systems, input in cybersecurity, and AML surveillance system. In addition, all the regulated activities in Singapore are subject to pre-determined capital requirements under the local laws and regulations, which the company will have to comply with.

Other than the net proceeds to be used for debt repayment, general working capital and IT infrastructure and regional expansion in Southeast Asia, the net proceeds are set to be used for (i) loans and advances to customers; and (ii) market making and investment in debt securities, has been considered by making reference to the similar revenue contribution of (i) the interest income generated from loans and financing and financial products; and (ii) the investment income generated from market making and investments, for the six months ended June 30, 2019.

Given that the proposed Rights Issue will not increase the issued share capital or the market capitalization of the company by more than 50%, there is no requirement under the Listing Rules for the Rights Issue to be approved by the shareholders in a general meeting.

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