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Citi-linked China broker sets IPO price amid competition concerns

[SHANGHAI] Chinese brokerage Orient Securities Co Ltd, the joint venture partner of a Citigroup Inc unit, has priced its IPO which could raise more than 10 billion yuan (S$2.2 billion) in the largest mainland initial public offering (IPO) since 2011.

Orient's IPO comes amid concerns on China's brokerages facing imminent competition from its banks after the securities regulator said on Friday it is considering issuing brokerage licenses to banks. Brokerage stocks, as a consequence, had fallen on Monday.

Brokerages like Orient have seen profits double as retail investor numbers jump and trading volumes soar, spurred by the central bank's surprise interest rate cut in November. China again cut interest rates this month.

Volumes have also been boosted by the Stock Connect scheme, which opened the same month, allowing direct trading of Hong Kong and Shanghai stocks on each other's bourses.

Orient Securities is selling 1 billion shares at 10.03 yuan, it said on Tuesday in a prospectus posted on the Shanghai stock exchange website, making it the largest IPO in China since Sinohydro Group Ltd raised US$2.11 billion in September 2011.

The funds will be used for working capital purposes and to expand business, among other things.

China has stepped up the pace of listings this year in an attempt to temper the country's red-hot stock market, which gained over 40 percent in the fourth quarter last year.

Orient Securities' IPO price gave it a price-to-earnings ratio of 22.98 times its 2014 profit on a diluted basis, far lower than an industry average of 76.17 times for the month up to Mar. 6, according to the firm's prospectus.

Orient Securities operates a joint venture with Shanghai-Citigroup Global Markets Asia, according to the JV's website.

Everbright Securities Co Ltd is underwriting the IPO.