China's Goldstate eyes $4 bln-plus domestic IPO

SHANGHAI (Reuters) - China's Goldstate Securities, a partner of Belgium's KBC (KBC.BR), aims to raise $4-5 billion in a domestic IPO by March 2008, sources close to the plan said, as local brokerages scramble to tap the red-hot stock market.

The share offering, which would cash in on a surge in Chinese brokerage stocks after a 20-month bull-run in the A-share market, will follow a planned acquisition of a smaller rival, China Minzu Securities.

If successful, the purchase of Minzu would more than double the total number of Goldstate's outlets to nearly 100, the sources told Reuters on Tuesday.

Goldstate's total assets are also expected to double to nearly 10 billion yuan ($1.32 billion) after the acquisition and a planned capital injection from its parent company, state-owned Capital Airport Holdings, they said.

"The deal will strengthen Goldstate's market position. Without it, it would be difficult for the IPO to raise as much money," said one of the sources, who declined to be identified.

Capital Airport, the parent of Hong Kong-listed Beijing Capital International Airport Co. Ltd. (0694.HK), is also the controlling shareholder of Minzu, with an over 60 percent stake.

Goldstate, more than 90 percent held by Capital Airport, had not yet set the size of the initial public offering but the target was to raise 30 billion to 40 billion yuan ($4-5.3 billion), the sources said.

Beijing is encouraging major brokers to list to bolster capital and improve corporate governance after it spent over two years revamping the industry, once in deep financial trouble.

At least a dozen Chinese securities firms, including Merchants, Everbright and Orient Securities, have said they are planning to list domestically in the near future to cash in on surging valuations among China's brokerages.

Goldstate has posted a profit every year since it was established in 2002. Its total assets reached 4.7 billion yuan at the end of 2006, ranking it in eighth position among the more than 50 second-tier securities firms in China at present.

Goldstate declined to comment, while officials at Minzu and Capital Airport could not be immediately reached for comment.

MARKET BOOM

Goldstate, which launched a Shanghai-based fund management joint venture with KBC late last year, plans to finalize the acquisition of Minzu by the end of this year, the sources said.

Goldstate, based in the southern city of Shenzhen, near Hong Kong, operates about 25 offices in major Chinese cities, focusing corporate and investment banking business, while Minzu focuses more on broking service.

After Goldstate acquires Minzu, Capital Airport will remain the controlling shareholder of Goldstate and plans to increase its registered capital, the sources said.

"Capital Airport is very keen to expand into financial sectors as it explores new profit streams to cut reliance on airport operations," said another of the sources.

"We only have three listed brokers so far on domestic markets while mainland investors like brokerage-concept stocks, so it is the right time for Goldstate to go public," he said.

Shares of the three Chinese listed brokerages, CITIC (600030.SS), Hong Yuan 000562.SZ and Haitong (600837.SS), have gone through the roof as their profits soar on swelling trading turnover and underwriting fees as China's IPO market booms.

CITIC Securities, China's top listed broker, has seen its share price rise almost 500 percent over the past year to 82.48 yuan by Tuesday's close. It is now trading at about 35 times its 2007 earnings, with a market value of about $30 billion.

Goldstate would focus on organic growth next year, by adding branches and securing more corporate clients, the sources said, adding it was in no hurry to find a foreign partner.

($1=7.580 yuan)