<News Alert> CICC (3908 HK, BUY) proposed Rights Issue Plan to raise up to Rmb27bn, -ve to share price
What’s New
- CICC (3908 HK, BUY) announced a proposed Rights Issue Plan to raise up to Rmb27bn, subject to CSRC’s approval
- All A and H shareholders would be allotted 3 Rights Shares for each 10 shares
- The Rights Issue Price shall not be lower than 80% of the average closing price of H shares in five trading days immediately prior to the Rights Issue Announcement, which sets out the final terms
- Central Huijin, the major shareholder of CICC who owns 41.87% of the shares, will subscribe all the offered right shares and would increase its shareholdings to 47.84%, if assuming 70% of the A right shares are subscribed and none of the H rights share are subscribed
- The H Rights Shares would be underwritten in accordance with Rule7.19(1) of the Listing Rules, and A Rights Shares underwriting would be on best-effort basis
- Proceeds raised would be primarily for enhancing balance sheet strength to support the capital needs for business development
Our View
- This might not be the best timing for fundraising given the historical low valuation for China brokers, as the dilution effect would be amplified
- Yet, we believe a timely Rights Issue would relieve the capital constraints and enable CICC to maintain its faster-than-peers business expansion
- The Rights Issue should help lift the Capital leverage ratio from 11.7% as of 1H22, which was lowest among listed brokers, to high-teens level which is in-line with most peers
- Expect near term pressure on share price given the high Rights Issue ratio (i.e. 3-to-10), but long-term outlook remains intact with more war chest on hand
- We currently have BUY rating with TP at HK$25
