In recent weeks, the stock market in China has begun to show signs of recovery, prompting brokerage firms to seize the opportunity for financial revitalizationThis resurgence is particularly notable as many brokerages have ramped up their bond issuance activities as a means to bolster capital strength and support their expanding business operations.

Data from Wind indicates that on February 11, no less than eight brokerage firms managed to secure a staggering 23 billion yuan through the issuance of short-term financing bonds or corporate bondsBy February 12, the aggregate amount of bonds issued and set for issuance this year reached an impressive 111.2 billion yuanThis acceleration in bond issuance follows the long Chinese New Year holiday, indicating that brokerages are capitalizing on favorable market conditions.

Numerous analysts shared insights with the Securities Times, articulating that the surge in bond issuance is closely intertwined with the urgent needs for capital supplementation and the improved financing costs across the market landscapeOn one hand, the swift expansion of brokerage services in recent years—particularly in self-operated investments and margin financing—has precipitated a marked increase in liquidity demands, necessitating debt financing to optimize operationsOn the flip side, the sustained low-rate environment has contributed to shrinking bond issuance costs, with some short-term financing rates even dipping below 2%. This low-cost financing allows brokerages to replace existing high-interest debts proactively.

The statistics from Wind clearly illustrate this trendOn February 11, major players including China Galaxy, CITIC Securities, Guotai Junan Securities, and more entered the market to issue bonds, collectively reaching 23 billion yuanNotably, CITIC Securities leads the pack with plans to issue 5 billion yuan in short-term corporate bonds, followed closely by China Merchants Securities and GF Securities with respective plans of 4 billion yuan each

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Other firms like Everbright Securities and Nanjing Securities are not far behind, each planning to issue no less than 2 billion yuan.

As of February 12, 31 brokerage institutions have issued or planned to issue a total of 61 bonds, hitting a cumulative issuance amount of 111.2 billion yuanAmong these, prestigious firms such as Guotai Junan, China Galaxy, and GF Securities each exceed an issuance scale of 10 billion yuanThis dominant trend illustrates a shifting landscape in brokerage financing.

Examining the motivations behind this wave of bond issuance more closely, He Jinlong, General Manager of Youmeili Investment, conveyed to the Securities Times that policy adjustments have played a pivotal role in facilitating this influxRegulatory bodies have eased restrictions on financing methods and scales for brokerages, encouraging them to bolster capital through bond issuance to enhance competitivenessRecent reforms in rating mechanisms and liquidity in the bond market allow brokerages the flexibility to ensure funds remain liquid, aligning them with regulatory mandates.

Furthermore, the low-interest environment not only diminishes the costs of bond issuance for brokerages but also fosters high investor enthusiasm for bonds, resulting in substantial subscription ratesA review of the bond issuance purposes reveals that most brokerages intend to deploy the funds raised to supplement operational capital, with some aiming to refinance maturing debt or support business development initiativesAs He emphasized, accessing abundant capital through bond issuance allows brokerages to advance their operations across various sectors, including proprietary trading, brokerage, and investment banking, ultimately heightening their competitive edge.

Conversely, when looking at the equity financing landscape, it becomes evident that stock issuance methods, including private placements, have attracted considerably less attentionRecently, Guolian Securities disclosed the results of its private placement, successfully raising approximately 29.49 billion yuan, representing a significant scale in recent brokerage capital raise instances while also marking the first successful private placement by a brokerage in over a year.

Equity financing through plan placements has seen notable reductions when compared to previous years

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In contrast to the hefty plans set forth by firms such as CITIC Securities and Industrial Securities in 2022, there has been a dearth of share placements in 2023, devoid of both completed plans and proposals.

Professionals in the finance sector observe a sharp decline in the focus brokerages place on equity financing compared to bondsZeng Hengwei, a wealth management expert, explained that this shift stems from lackluster conditions in the financial equity financing market, where maintaining valuation levels proves challenging and where financing costs remain highAdditionally, concerns about dilution of shareholder rights and implications for existing stakeholder interests further contribute to this cautionIn contrast, bond issuance retains advantages regarding cost-effectiveness and streamlined processes, rendering it the preferred means of financing for brokerages at this juncture.

He Jinlong also posited that regulatory guidance has steered brokerages toward focusing on core operations in a capital-efficient manner while exercising caution with capital-intensive activitiesStringent oversight on substantial refinancing activities by listed financial firms, including pre-communication mechanisms, has made raising equity a more complex and uncertain process.

Moreover, for individual brokerages, strategic decisions to maintain balanced capital structures while avoiding overly diluted equity could translate into stronger governance and control mechanismsSome brokerages are now pivoting from capital-heavy businesses toward avenues such as wealth management and fintech, thereby decreasing the need for aggressive equity financing.

As the landscape of brokerage bond issuance evolves, there are strong indicators that recovery in this sector may foreshadow improved capital conditionsGiven the capital-intensive nature of brokerage operations, heightened demands for capital strength to support both business growth and market competitiveness remain paramount

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In an environment characterized by low market interest rates and accommodative monetary policies, borrowing costs through bond issuance tend to be optimized, facilitating the capital-raising process.

Statistics from Wind demonstrate that for 2024, brokerages plan to issue a collective total of 686 bonds, amounting to 1.31 trillion yuanThis marks a decrease in both issuance volume and scale compared to the previous yearNevertheless, Chen Xingwen, Chief Strategy Officer of Heiqi Capital, underscored the proactive stance of regulatory policies encouraging capital supplementation, particularly through instruments like subordinated bonds and perpetual bonds that effectively enhance capital adequacy ratios while streamlining financial structures.

These developments signify that the primary intent behind bond issuance encompasses fostering business expansion, mitigating repayment pressures, and satisfying regulatory compliance, particularly in times of market volatility where the stability and efficiency of debt financing become crucial.

Since the fourth quarter of 2024, the People’s Bank of China has maintained a loose monetary policy, which has contributed to abundant market liquidity and consistently low yields on 10-year government bonds, further driving down bond issuance interest rates for brokeragesObservations suggest that the persistently low rate environment is likely to invigorate the demand for bond issuance among brokerages.

He Jinlong predicts a rebound in bond issuance scales amid favorable low-rate terrainsRecent figures indicate that by early 2025, the average coupon rate on corporate bonds has plummeted to 2.06%, while short-term financing bonds have dropped to a historical low of 1.8%. Such favorable financial conditions considerably reduce financing costs for brokeragesEnhanced market demand, as evidenced by some bonds from Galaxy Securities experiencing subscription multiples exceeding 2, denotes high market enthusiasm for debt instruments as well

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