Chinese broker Guotai Junan raises $2.1 bln in HK share offer-source

Elzio Barreto

* Had offered 1.04 bln shares at fixed price of HK$15.84


* Narrow discount to Shanghai stock price hurt retail demand

(Adds analyst comment, underwriting fees)

HONG KONG, April 3 (Reuters) - Guotai Junan Securities Co

Ltd, China's third-largest brokerage by assets,

raised $2.1 billion in a rare fixed-price share offering that

was the biggest stock sale in Hong Kong in six months, a source

with direct knowledge of the deal said on Monday.

The Shanghai-listed company offered 1.04 billion new shares

at a fixed price of HK$15.84 each, putting the total deal at

HK$16.5 billion ($2.12 billion). Guotai Junan's deal was the

largest stock sale in the city since the $7.63 billion IPO of

Postal Savings Bank of China in September.

Concerns over volatility in China's equity markets and a

smaller-than-expected discount to the price of its

Shanghai-listed stock curtailed demand for the deal,

particularly from retail investors, analysts said. Those mom and

pop investors have a significant influence over first-day

trading in Hong Kong share offerings.

The shares were originally offered at a discount of 25

percent to Guotai Junan's closing price in Shanghai on March 24,

but a decline in the shares last week narrowed that discount to

about 23 percent.

"There wasn't much demand from the retail investors," said

Jasper Chan, assistant manager of corporate finance at Hong Kong

brokerage Phillip Securities, which offers margin loans for

retail investors to buy into share offerings in the city. "The

discount was not quite attractive and the market sentiment is

not good at the moment."

A fixed-price share offering is unusual, with most deals

setting an indicative range before deciding on the final

pricing, depending on demand.

Guotai Junan did not immediately respond to a Reuters

request for comment on the share sale.

The company plans to use 30 percent of the share sale

proceeds to develop its prime broking and lending business for

institutional clients and another 30 percent to open new retail

branches and launch financial technology (Fintech) services, it

said in the prospectus for the sale.

The remainder will be used to expand its asset management

and overseas businesses, including potential joint ventures with

international firms.

Guotai Junan secured $598 million in commitments from

cornerstone investors for the share sale, including $388 million

from private equity firm Apax Partners and $100 million from

real estate investment firm Winland Group.

The shares will debut in Hong Kong on April 11.

Bank of America Merrill Lynch, Goldman Sachs, Shanghai

Pudong Development Bank International and Guotai Junan's Hong

Kong investment-banking arm - Guotai Junan International

- acted as joint sponsors for the deal.

Guotai Junan also hired another 16 banks as joint

bookrunners for the deal. The banks stand to jointly earn $42

million in fees, equivalent to a 2 percent underwriting


($1 = 7.7715 Hong Kong dollars)

(Reporting by Elzio Barreto; Editing by Stephen Coates and

Muralikumar Anantharaman)