If the "Green Shoe Option" is fully exercised, the total funds raised by Changxin Technology may reach 66.6 billion yuan, and the floating profits from the follow-up investment of the two sponsoring institutions will far exceed their underwriting and sponsoring fees.
On July 16, domestic storage giant Changxin Technology will launch its online subscription. In contrast to the vast number of investors who are eager to secure a winning allotment, multiple securities firms have already locked in a substantial portion of new shares through pre-investment, follow-on investment, and offline placement channels.
On the evening of July 14, Changxin Technology released an announcement regarding the strategic placement entities and offline placement investors for this IPO. According to the announcement, as many as 65 institutions will participate in the strategic placement, among which the two sponsoring institutions, China International Capital Corporation (CICC) and CITIC Securities, have qualified through the mandatory follow-on investment requirement for sponsors, with each subscribing an amount of 1 billion yuan. Some analyses suggest that compared to the underwriting and sponsorship fee income, the relatively substantial follow-on investment returns are expected to be the main profit driver for securities firms.
In addition, many securities firms have demonstrated high enthusiasm for offline new share subscription, with no shortage of cases where the subscription funds amount to nearly 2 billion yuan.
If the "Green Shoe Mechanism" is fully exercised, the maximum raised capital can reach 66.6 billion yuan
According to Changxin Technology's announcement last night, the total estimated raised capital for this IPO is approximately 579.19 billion yuan (before the exercise of the over-allotment option), with a net amount of about 576.38 billion yuan after deducting issuance costs, exceeding the previously planned 295 billion yuan.
Among them, the lineup of institutions participating in the strategic placement has drawn significant market attention. As disclosed in the announcement, the initial strategic placement for this offering is 3.34 billion shares, accounting for 50% of the total offering size, and approximately 43.48% of the total issued shares after the full exercise of the over-allotment option. The final strategic placement size for this offering is 1.667 billion shares, accounting for 24.93% of the initial offering size (before the exercise of the over-allotment option). Looking at the list of institutions that ultimately participated in the strategic placement, it includes 36 investment portfolios under the social security fund and the basic pension insurance fund, several leading insurance companies, and more than a dozen enterprises with upstream and downstream cooperative relationships with Changxin Technology.
For this IPO, the issuer also granted the sponsoring institution CICC an over-allotment option (commonly known in the market as the "Green Shoe Mechanism"), allowing CICC to over-allot no more than 15% of the initial offering size to investors at the offering price of this issuance.
It is worth noting that calculated based on the offering price of 8.66 yuan per share for this issuance, if the over-allotment option is fully exercised, the total estimated raised capital for the issuer will be approximately 666 billion yuan. After deducting issuance costs of about 2.96 billion yuan (excluding value-added tax and including stamp duty), the net raised capital is expected to be around 663.1 billion yuan.
From this perspective, whether to exercise the over-allotment option has a significant impact on the final size of the raised capital. During the IPO issuance process, the decision to exercise the "Green Shoe Mechanism" depends on the stock price performance after the new shares are listed, rather than pre-listing expectations. Senior investment banking professional Wang Jiyue pointed out to reporters, "If the stock price falls below the offering price, funds from the 'Green Shoe' are needed to support the stock price. But if the price does not fall below the offering price and performs well, it indicates strong market demand, so the 'Green Shoe Mechanism' can be used to raise more capital while meeting investor demand."
Another person from the investment banking department of a leading securities firm stated, "Most IPO issuers want to issue more shares through the 'Green Shoe Mechanism'. At present, the possibility of Changxin Technology's stock price falling below the offering price in the short term after listing is low."
It is understood that the "Green Shoe Mechanism" is a complete set of trading arrangements, with the full process including: 1. Granting the underwriter an over-allotment option; 2. The underwriter pre-selling up to 15% additional shares in advance; 3. Making decisions based on stock price performance within 30 days after listing. If the stock price rises, the listed company will issue additional new shares, which means the over-allotment option has been exercised.
Sponsoring institutions may obtain considerable follow-on investment returns
Recently, the market has maintained high attention to the situation of securities firms holding shares in Changxin Technology. According to statistics from Orient Securities, the shareholding ratios of China Merchants Securities, Huaan Securities, CITIC Securities, and Guotai Haitong in Changxin Technology's post-issuance share capital are 0.752%, 0.393%, 0.134%, and 0.086% respectively. Among them, China Merchants Securities participates mainly through China Merchants Investment, Zhong'an China Merchants Fund, and Anhui Transportation Investment Group; Huaan Securities participates primarily through Anhua Innovation and the second phase of the National Integrated Circuit Industry Investment Fund; CITIC Securities and Guotai Haitong participate via Xinxin Lirun and Haitong Huiyin respectively.
It is worth noting that some current analyses suggest that based on static calculations of Changxin Technology's performance in the first half of this year, the total market value of Changxin Technology after listing is expected to hit the 3 trillion yuan mark. Estimated based on a total market value of 3 trillion yuan, the market value of China Merchants Securities and Huaan Securities' shareholdings in Changxin Technology will reach 225.6 billion yuan and 118 billion yuan respectively.
In addition, the two sponsoring institutions for Changxin Technology's IPO are also expected to obtain substantial follow-on investment returns. According to the announcement released by Changxin Technology last night, as many as 65 institutions will participate in Changxin Technology's strategic placement, among which the two sponsoring institutions, CICC and CITIC Securities, have qualified through the mandatory follow-on investment requirement for sponsors, with each subscribing an amount of 1 billion yuan.
Assuming Changxin Technology's market value reaches 3 trillion yuan after listing, combined with the total post-issuance share capital of 67.884 billion shares (after the full exercise of the over-allotment option), the share price will reach 44.2 yuan, representing an upside potential of nearly 400% compared to the offering price of 8.66 yuan per share. Based on this calculation, the two sponsoring institutions are expected to each obtain a floating profit of nearly 4 billion yuan from their follow-on investments. In contrast, the more than 200 million yuan in underwriting and sponsorship fees to be distributed among 6 underwriters appears somewhat "insignificant".
Since the beginning of this year, due to the booming market for technology-themed new shares, some securities firms that participated in follow-on investments have obtained substantial floating profits. According to statistics, as of the end of June this year, the new share that brought the largest floating follow-on investment profit to its sponsoring institution was Lianxu Instruments, which generated a floating follow-on profit of 1.725 billion yuan for its sponsor CITIC Securities.
Multiple securities firms actively participate in offline new share subscription
According to Changxin Technology's "Initial Public Offering and Listing on the Science and Technology Innovation Board Issuance Announcement" released last night, in addition to various funds, the securities industry has also shown high enthusiasm for this offline subscription.
As disclosed in the announcement, the proprietary investment accounts of multiple securities firms including Jianghai Securities, AVIC Securities, Bohai Securities, Caida Securities, Northeast Securities, Orient Securities, Guohai Securities, Guosheng Securities, Guoxin Securities, Huabao Securities, Huaxi Securities, Financial Street Securities, Nanjing Securities, Shanxi Securities, Southwest Securities, Yingda Securities, Xiangcai Securities, Zhongtian Securities, First Venture Securities, Dongguan Securities, and East Asia Qianhai Securities have participated in the offline subscription for Changxin Technology's new shares.
Notably, among these securities firms, there are numerous cases where the offline subscription funds amount to nearly 2 billion yuan. For example, the subscription amounts of Caida Securities, AVIC Securities, and Northeast Securities in this offering have reached 2 billion yuan, 2.04 billion yuan, and 2.045 billion yuan respectively. This demonstrates that the new share subscription opportunity of Changxin Technology is quite attractive to many small and medium-sized securities firms.
However, due to triggering the "high-price elimination" or "low-price elimination" criteria, securities firms such as First Venture Securities, Dongguan Securities, East Asia Qianhai Securities, Yingda Securities, Xiangcai Securities, and Zhongtian Securities will be excluded from this offline new share subscription of Changxin Technology.
Disclaimer: The content and data in this article are for reference only and do not constitute investment advice. Please verify before use. Those who act based on this shall bear their own risks.
This article is from the WeChat official account "Daily Economic News", Author: Wang Haimin, Editors: Zhang Jinhe, Peng Shuiping, Du Hengfeng, Proofreader: Cheng Peng, Published with authorization from 36Kr.