“Now it’s more and more ‘Roll’.” Zhou Qiang (a pseudonym) sighed.
Zhou Qiang has been engaged in investment banking project contracting in a head brokerage branch for several years. He often meets customers seven days a week and has more than one entertainment in one night. Even if he has adapted to this social frequency, the market in 2021 still puts a lot of pressure on him. “What a robbery!” Looking back on 2021, Zhou Qiang jumped out these three words. “Many projects in 2021 will not be seen before. In 2021, we have to compete not only with, but also with several peers.”
According to the data, as of December 29, 2021, there were 1205 equity financing projects in the whole market, raising 1.81 trillion yuan, including 523 initial IPOs and raising more than 543.6 billion yuan. Compared with these two sets of data in 2020, the average annual growth in 2021 is somewhat higher.
“The real challenge for investment banks is still ahead. The supervision has proposed not only to ‘protect’ but also to ‘recommend’, and most investment banks do not know what to do. If the supervision does not ‘teach hands’, they will not do it and dare not do it.” Wang Jiyue, a senior investment banker, stressed that supervision also puts forward higher transformation requirements for investment banks. “With the segmentation of the market cake and the periodicity of project growth, the tail investment bank has the risk of ‘elimination’.”
With regard to the capital market, the central economic work conference pointed out that the reform and opening-up policy should activate the driving force of development, pay close attention to the pilot of comprehensive reform of market-oriented allocation of factors, and fully implement the stock issuance registration system. In this context, in Wang Jiyue’s view, it will be more and more important to tap the company’s value and form an investment bank brand.
Compact the responsibilities of issuers and intermediaries and promote the survival of the fittest of listed companies
Yi Huiman, chairman of the CSRC, proposed to comprehensively deepen the reform and opening up of the capital market under the guidance of the reform of the whole market registration system.
Not long ago, when making a report on the work related to the reform of the stock issuance registration system to the Standing Committee of the National People’s Congress, Yi Huiman said that after the pilot of the science and innovation board and the gem, the conditions for the implementation of the registration system in the whole market have been gradually met. The CSRC will choose an appropriate time to comprehensively promote the reform of the registration system and strive to improve the function of the capital market.
As a capital intermediary, the implementation of a comprehensive registration system, securities companies are undoubtedly the biggest beneficiaries.
Zheshang Securities Co.Ltd(601878) the latest research report points out that the comprehensive registration system is conducive to improving the issuance efficiency, increasing the proportion of direct financing, and bringing performance increment to the investment banking business of securities companies. The reform of registration system puts forward higher requirements for the underwriting ability, pricing ability and sales ability of securities companies, and the head securities companies with rich project experience and sufficient talent reserves will benefit more. Statistics show that the income concentration of investment banking business has increased from 29% in 2019 to 31% in the first half of 2021. At the end of the third quarter of 2021, the top five IPO underwriting scale exceeded 50%. In the future, investment banking leaders will continue to benefit from the dividends of the registration system reform.
“The transformation pressure faced by investment banks comes not only from regulation, but also from the market. Whoever takes the lead may win the market.” Wang Jiyue said.
Sinolink Securities Co.Ltd(600109) relevant people also call the current investment banking market “the ‘Red Sea’ with fierce competition”, but at the same time, he also believes that relying on their own unique advantages and taking the differentiated development route is the fundamental way for small and medium-sized securities companies to open up the “blue ocean” market and seek their own long-term development. In terms of practical operation, the person mentioned that taking the differentiated competition route of “specialization” can start from many aspects, that is, cultivating key industries on the basis of comprehensive coverage and improving resource integration and service capacity in key industries; Continuously strengthen the research ability and pricing and sales ability; Strengthen the construction of compliance risk control and meet the requirements of the registration system.
Yi Huiman stressed that the pilot registration system has been deepening from the incremental market to the stock market, reforms in various fields and links have been carried out in an orderly manner, and profound structural changes are taking place in China’s capital market. It has gathered the resources of the listed companies and promoted the innovation of the intermediary companies.
The comprehensive registration system has higher requirements for the compliance requirements and intermediary responsibilities of securities companies, and the importance of the professional pricing ability and compliance risk control ability of securities companies must also be improved.
Some media disclosed that as of December 21, 2021, the CSRC system had issued 52 tickets for the investment banking business of securities companies throughout the year, involving 28 securities companies, including 27 tickets for IPO business.
With regard to the continuous compaction of intermediary responsibilities, Sinolink Securities Co.Ltd(600109) the above people mentioned that improving the check and balance role of internal control departments (including quality control, core, compliance and risk control departments) on the front office business department is still one of the effective means to give play to the internal check and balance mechanism of intermediaries and improve the practice quality. At the same time, “In the specific practice process, give full play to the professional advantages of various intermediaries, appropriately reduce the duplication of work between securities companies and other intermediaries, clarify the responsibility boundaries of various intermediaries, especially emphasize the enhancement of the project team’s ability to investigate and review the professional reports issued by lawyers, accountants, appraisers and other intermediaries, give play to joint efforts and solve key and difficult problems.” 。
For 2022, many institutions and analysts predict that the IPO scale and regulatory direction will not change in 2022. Wang Jiyue expects that the number of IPOs will continue to remain above 500 per year in the future.
After the full implementation of the registration system, the IPO is expected to achieve normal issuance. “Benefiting from the implementation and promotion of the full registration system, the investment banking revenue is expected to increase by 15% year-on-year in 2022”. Anxin securities forecast.
the average IPO fund-raising scale decreased as a whole
“The investment banking market as a whole is still booming in 2021. Even if there are many ‘no and withdrawal’, the number of projects and total financing data are here, and the total income will not be poor. In terms of supervision, under the requirements of ‘shareholder verification’ in the first half of 2021, the pressure of full penetration responsibility will increase for a time, but the pressure will be relieved in the second half of the year with the calibration of regulatory policies.” Looking back on the investment banking market in 2021, Wang Jiyue summarized from these two aspects.
In February 2021, the CSRC issued the guidelines for the application of regulatory rules – Information Disclosure of shareholders of enterprises applying for initial listing, requiring that if the equity structure of the issuer’s shareholders is more than two layers and is a company or limited partnership without actual business, if the transaction price of the shareholder’s shares is obviously abnormal, the intermediary shall conduct penetration verification on the shareholder to the ultimate holder.
At the same time, competition is also intensifying, and the initial fund-raising scale of IPO projects of head securities companies has declined year-on-year.
Zhou Qiang’s feeling is intuitive. In recent years, with the change of market environment, investment banking projects began to sink, and the securities companies that once did not worry about the project began to “roll”.
In 2021, the average IPO fund-raising scale decreased as a whole. According to wind data, the average initial fund-raising scale of each IPO in 2021 was 1.039 billion yuan, about 1.1 billion yuan in 2020 and 1.247 billion yuan in 2019.
The contraction of IPO fund-raising is a continuous and gradual process, in which the head securities firms and investment banks have decreased more significantly.
Previously, large-scale IPO projects have always been “in the bag” of head securities companies, but large-scale projects are rare. In the past three years, there have been about 3 orders every year. At the same time, on the whole, the growth cycle of large IPO projects is long and the number is limited. With the listing in recent years, the stock in the market continues to digest.
“There are so many big projects. If you only focus on big projects, don’t you want to drink the West and north wind?” An insider mentioned. In his opinion, in the process of promoting the registration system, even for the head securities companies, a large number of new projects come from small and medium-sized projects, such as projects with an initial fund-raising scale of 1 billion yuan or even less than 500 million yuan.
In 2021, the number of small and medium-sized initial projects sponsored by Citic Securities Company Limited(600030) increased significantly. According to wind data, among the 60 IPO projects sponsored by Citic Securities Company Limited(600030) in 2021 (non underwriting caliber) and listed, 39 projects with initial fund-raising of less than 1 billion yuan and 24 projects with initial fund-raising of less than 500 million yuan. Among the 34 IPO projects sponsored and listed by Citic Securities Company Limited(600030) in 2020, 23 projects with initial fund-raising of less than 1 billion yuan and 9 projects with initial fund-raising of less than 500 million yuan.
IPO market increment is mainly small and medium-sized projects
When the “three middle schools and one China” ( Citic Securities Company Limited(600030) , CICC securities, China Securities Co.Ltd(601066) and Huatai Securities Co.Ltd(601688) ) and other head securities companies begin to sink, the feeling of shoulder securities companies is often more obvious.
“Under the registration system, we do feel the rapid increase in business volume. At the same time, the market competition is becoming more and more fierce, and the ‘Matthew effect’ is particularly significant.” Sinolink Securities Co.Ltd(600109) mentioned above. Sinolink Securities Co.Ltd(600109) actively arranged the investment banking business earlier. In 2021, equity underwriting ranked 13th. Looking back at the project cycle of about three years, the scale of Sinolink Securities Co.Ltd(600109) equity underwriting ranked 18th and 19th in 2018 and 2019. It is one of the leading securities companies in recent years.
The “Matthew effect” mentioned refers to that the project is still concentrated to the head even in the case of overall volume. According to the above data, the number of IPOs has been increasing in the past three years, from 203 in 2019 to 437 in 2020, and then to 520 in 2021, but most of the increment has been reaped by head and shoulder securities companies.
Specifically, among the 86 securities companies with equity underwriting business included in wind statistics, only two had more than 100 businesses as the lead underwriter in the whole year, namely Citic Securities Company Limited(600030) and China Securities Co.Ltd(601066) ; There are only 6 companies with more than 50 businesses, namely “three middle schools and one China” plus two head securities companies Guotai Junan Securities Co.Ltd(601211) and Haitong Securities Company Limited(600837) . In the range of 20 orders to 50 orders, there are 15 securities companies. In the whole year, there were 13 securities companies with only one equity lead underwriting, and up to 42 securities companies with less than five (including five). Among the 42, 17 did not have a single IPO in the whole year. If we only look at the IPO data, 55 securities companies have three or less IPOs in the whole year. At the same time, Citic Securities Company Limited(600030) has 67 IPOs, and the top 10 securities companies have won more than half of the IPO market, accounting for 55%.
From the perspective of IPO market structure, “large projects are basically done by leading companies. This is mainly because large projects are relatively more complex, and leading securities companies have a lot of experience in organization and coordination. Generally, small projects can be completed by three or five people, large projects need dozens of people, plus other intermediaries”. Wang Jiyue mentioned that the number of large projects is limited, and the market now has the scale of 500 IPOs a year. At present, most securities companies have expanded their teams and increased their staff, and the competition for small and medium-sized projects is bound to be more intense.
(China business network)
