HONG KONG - Guosen Securities Co, the top-ranked arranger of Chinese initial public offerings (IPO), has more than doubled the workforce at its Hong Kong unit this year as Chinese investment banks challenge Goldman Sachs Group Inc and Morgan Stanley outside the mainland.

Guosen Securities (HK) Financial Holdings Co has about 200 employees, up from less than 100 at the end of last year, Chief Executive Officer Lu Xiao Ning said.

The firm plans to add 500 square meters of office space to the 1,500 square meters it occupies at One Exchange Square and Li Po Chun Chambers in central Hong Kong, he said.

The expansion comes as competition for arranging share sales squeezes fees in Hong Kong, while rivals including UBS AG have said rising banker compensation is eroding margins.

Average fees for IPO underwriting in Hong Kong this year fell to 2.2 percent of the funds raised from 3.5 percent in 2001, according to data compiled by Bloomberg.

"Hiring isn't easy but people are seeing the bright prospects of Chinese companies," said Lu.

"There are many Chinese companies looking to sell shares in Hong Kong or invest outside (the Chinese mainland). These are massive opportunities that we'd like to grab."

Guosen Securities, based in Shenzhen and controlled by the city's government, has worked on 18.7 billion yuan ($2.9 billion) of IPOs in China so far in 2011, more than any other bank, Bloomberg data show.

Fees for those deals averaged 4.6 percent of funds raised, according to the data. The Hong Kong unit, which got a license to underwrite share sales in April, hasn't managed any equity offerings in the city so far.

China listing

Guosen Securities plans an IPO on the Chinese mainland as early as this year, Lu said. After the listing, the company may consider selling shares in Hong Kong, he said. Guosen Securities posted profit of 3.1 billion yuan in 2010 on revenue of 7.8 billion yuan, according to Guosen Securities' website.

Guosen Securities hired Cheng Gang from HSBC Holdings Plc last year to head its Hong Kong investment banking, Lu said. The executive said he expects his Hong Kong business to be profitable this year, while declining to give a forecast for hiring.

"We are working on a number of IPO deals and are in talks with some companies about issuing dim sum bonds," Lu said. According to Lu, Guosen Securities has 4 million clients on the Chinese mainland. "We can offer services they need when they seek funding or invest abroad."

Local finances

Guosen Securities' State ownership limits its ability to lure bankers with big pay packages in Hong Kong, Lu said.

"That could create too wide a gap" with the company's domestic operations, he said. "Bankers are professionals so they can judge whether we are the best platform for them to progress."

Chinese local governments' finances are "more solid than people imagine" because the pace of urbanization is high enough to ensure they can meet debt commitments, Lu said.

"China is a big country and it's just one or two small local governments that have encountered some problems," he said.

"You have to look at the probability. If someone got killed crossing the road, are you not going to cross it anymore?"

Bloomberg News

(China Daily 07/26/2011 page17)