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Betting the house on the Chinese Stock Market

In China, you can now literally bet the house on the nation’s tumultuous stock market.

Under new rules announced Wednesday by the country’s securities regulator, real estate has become an acceptable form of collateral for Chinese margin traders, who borrow money from securities firms to amplify their wagers on equities. That means if share prices fall enough, individual investors who pledge their homes could be at risk of losing them to a broker.

“It does come across as relatively desperate,” said Wei Hou, an analyst at Sanford C. Bernstein & Co. in Hong Kong. “Globally, illiquid assets such as real estate are not accepted as collateral as they are very hard to liquidate.”

“This is simply not practical,” said Chen Gang, the chief investment officer at Shanghai Heqi Tongyi Asset Management Co. He joked with colleagues that brokers would have to become experts in everything from property to antiques, given the range of assets that clients could potentially pledge.

“Brokers are not stupid,” said Hao Hong, a China strategist at Bocom International Holdings Co. in Hong Kong. “I don’t think they would be willing to take this kind of collateral.”

The Shanghai Composite Index closed below the 4,000 level on Thursday for the first time since April, even after stock exchanges cut fees and the securities regulator rolled out its margin financing rule revisions more quickly than planned because of “market conditions.” Declines since June 12 have erased at least $2.4 trillion of value from Chinese shares, more than the entire market capitalization of France.

–from Bloomberg

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SEBI clears Catholic Syrian Bank IPO

(Disclosure: I am market making in Catholic Syrian Bank and if anyone wants to buy/sell CSB, please email me at Alpha Ideas )

Catholic Syrian Bank has received capital market regulator Sebi’s approval to raise up to Rs 400 crore through an initial public offer (IPO).

The company in March had filed its draft red herring prospectus (DRHP) with Sebi through its lead merchant banker, ICICI Securities.

Sebi issued its final observations on the draft offer documents on June 23, which is necessary for any company to launch a public offer.

“The bank will issue equity shares aggregating up to Rs 4,000 million,” the draft papers stated.

Besides, the mid-sized private lender is considering to raise up to Rs 150 crore through pre-IPO placement .

The proceeds of the issue will go towards augmenting the bank’s capital base to meet its future capital requirements.
–from ET
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Barclay’s Top 3 Picks from India

Reliance Industries Ltd (RIL), HDFC Bank and Dr Reddy’s Laboratories are the only three Indian firms to figure in Barclays’ top 111 stock picks from across the world for 2015.

In its ‘Global Top Picks’ report, Barclays has said more than six years into the recovery, the key drivers of the market rally – low inflation, moderate growth and unprecedented monetary support – are set to have a reduced impetus.

“We are entering the next phase of the business cycle where valuations in equities and fixed income are relatively expensive and evidence is accumulating that the recovery is becoming self-sustaining, suggesting that monetary policy will be less supportive going forward,” it said.

RIL was the only stock pick in energy segment in Asia, while HDFC Bank is featured with China Taiping and China Resources Land in the Financial Services sector. Dr Reddy’s Laboratories also is the only stock pick in healthcare segment in Asia.

On RIL, it said it expects earnings to grow 47 per cent over 2015-18 even if oil prices remain low and volatile, helped by the completion of $16 billion in downstream projects that are all slated to come online over the next 6-15 months.

“We believe this provides one of the strongest growth outlooks among the global energy stocks Barclays covers,” it said.

Higher output from select offshore India gas projects that raises upstream production and a credible path to profitability in its ambitious data-centric telecom project (launch expected in December 2015) should drive earnings growth thereafter.

On HDFC Bank, Barclays said the bank was ideally placed to benefit from a macro recovery, owing to its strong low-cost deposit (CASA) franchise, clean balance sheet and increased investment in the network.

“It remains a leader in key retail lending segments and is strong in transaction processing, giving it access to float (CA income).

“The recent pickup in network investments and its focus on digital transactions should help it maintain its leadership position in CASA and grow loans 3-6 per cent faster than the system,” it said.

Dr Reddy’s (DRL), Barclays said, was a strong play on niche therapeutic areas (injectables and oncology) driven by a robust Para-IV pipeline in the near term and a significantly differentiated R&D strategy for Proprietary products and Biosimilars.

“We forecast revenue and earnings CAGR of 15 per cent and 20 per cent, respectively, over FY15 to FY17 along with a 440 basis points increase in ROIC. DRL is the least expensive large-cap stock in our Asia ex-Japan Healthcare & Pharma coverage,” it said.-from NDTV

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When will India’s BSE go public?

(Disclosure:I am market making in the shares of BSE)

Last week, Canadian investor Thomas Caldwell sent a combative letter to Indian Finance Minister Arun Jaitley, copying both Modi and the head of SEBI to protest excessive delay in listing the exchange. Caldwell, chairman of Toronto-based Caldwell Investment Management, bought 4.8% of BSE in 2007 for roughly $47 million not long after BSE demutualized. Caldwell was also a major investor in New York Stock Exchange before it went public in 2005, and has invested in 36 other exchanges around the world. “As Canadian investors we felt comfortable investing in a country with a British common law basis,” Caldwell wrote Jaitley. “We all laud the rhetoric of the past several months, but, as we move from this ‘honeymoon’ period, substantive steps are now hoped for.”

The paradox isn’t lost on investors: One of India’s most promising stocks – and the operator of its booming stock market, no less – isn’t itself on the market. Across the world, publicly-listed exchanges are the norm rather than the exception, and Caldwell, who shared a copy of his June 16 letter with Barron’s, said it was “ironic” that India is encouraging companies to go public to democratize capital markets, but the exchanges aren’t allowed to do the same.

BSE was founded in 1875, and came to be the jewel of India’s 22 exchanges. Then India launched the National Stock Exchange in 1992, a modern exchange that would let investors trade shares listed anywhere from anywhere else in India, and whose benchmark is the CNX 50 index. BSE rapidly lost share, but its strong brand kept it alive. Under Chauhan, the BSE began its revival. Today, it is still India’s best-known exchange, with the benchmark S&P BSE Sensex Index. It has 5,672 companies listed – the most in the world—and their combined market value of more than $1.57 trillion makes it the planet’s 11th largest. It’s also the world’s largest for currency options, and third largest for currency futures. Its technology – from Deutsche Boerse, which owns 5% – is advanced, and about 30% of the exchange is owned by foreign investors

So what might a publicly-listed BSE be worth? India’s benchmark Sensex index trades at 22 times what its components had earned. Applying a price-to-earnings multiple of 20 – 25 times to the $24.5 million BSE earned would peg its value roughly at $490 million to $613 million.

But that’s just a start, and the BSE could be worth much more in time. Stock markets are growing in Earth’s second most populous nation, and just a small fraction of India’s savings is invested in equities, so trading volumes are poised to expand. In a recent interview, Chauhan forecast that the Indian stock market could help companies raise $150 billion a year over the next five to seven years. Just look at BSE’s peers: Hong Kong Exchanges & Clearing ( 388.HK ) has become one of the best-performing stocks within Hong Kong’s Hang Seng Index, commanding a market value of $43.4 billion, and fetching 36 times 2015 earnings. The Intercontinental Exchange ( ICE ), which owns NYSE, has a market value of $25.6 billion and trades at 23 times earnings. The Singapore Exchange (SGX.Singapore), which owns 5% of BSE, has a market value of $6.3 billion and trades at 24 times earnings.

–from Barrons

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RBL Bank files for IPO

(Disclosure:I am market making in the shares of RBL Bank)

Private sector lender RBL Bank (formerly Ratnakar Bank) on Tuesday filed its draft red herring prospectus (DRHP) with market regulator Securities and Exchange Board of India (Sebi) to raise Rs 1,100 crore by issue of fresh shares through an initial public offering (IPO).

Apart from the fresh equity, two existing shareholders of the bank — Beacon India Private Equity Fund and Gpe (India) will also divest 9.5 million and 3.5 million equity shares, respectively in the IPO.

The bank is also looking at private placement of up to 25 million equity shares for cash consideration aggregating up to Rs 500 crore. In case the pre-IPO placement is completed, the size of the IPO will come down accordingly.

The RBL Bank issue is being managed by Kotak Mahindra Capital, Axis Capital, Citigroup, Morgan Stanley, HDFC Bank, ICICI Securities, IDFC Securities, IIFL Holdings and SBI Capital Markets.

-from BS