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China Development Financial structures its overseas subsidiary KGI HK to be listed in Hong Kong

      2015-07-28

China Development Financial Holding (hereby CDF) is in the process of consolidating KGI Securities' holdings, including operations in Hong Kong and Singapore as well as its 35% stake in KGI Securities (Thailand), within the Asia Pacific Region and structuring its overseas subsidiary (hereby KGI HK) as the controlling entity to submit IPO request to The Stock Exchange of Hong Kong Limited. Post the IPO process, KGI Securities will remain its controlling shareholder position in KGI HK and become the pioneer in going listed overseas among Taiwan financial institutions.


Operating in Hong Kong, one of the main financial centers and hubs for global investment banks, KGI HK is inevitably going to raise capital through IPO in Hong Kong to counter the ever-increasing competition arising from its peers. To maintain KGI HK's competitiveness (KGI HK brokerage market share is ranked top 20 or top 5% as of 1Q15) and counter overseas investment banks' recent merger and acquisition activities in Hong Kong, it is necessary for KGI HK to go listed in Hong Kong.


Going listed in Hong Kong will improve KGI HK's capital-raising capacity as well as its international exposure. By raising capital directly from international investors through IPO in Hong Kong, KGI HK is able to enhance its cross currency procurement capability, solidify its international branding establishment, and strengthen its recruitment of global elites. Subsequently, CDF's return on equity is expected to rise following lower funding cost resulting from improved market valuation.


If KGI HK's IPO is executed successfully, it will be one giant leap for Taiwan's financial market. In fact, KGI HK's IPO in Hong Kong will signal the acknowledgement from the global capital market regarding Taiwan financial institutions' overseas operation capacity as well as KGI HK's solid corporate governance and transparent overseas operation.


After years of cultivation, KGI HK has the capacity to raise capital overseas through IPO, as evidenced by its increasing overseas profit contribution which currently accounting for 35.1% of KGI Securities' total profit in 1Q15. Aiming to capitalize on Asia's increasing role in global economic development and the merging trend of the ASEAN market with the international capital markets, KGI HK is going to expand its business coverage from Hong Kong, Singapore to Thailand. Post the integration, KGI HK can penetrate the ASEAN market though its channels in Thailand, which will further diversify its geopolitical risk that arise from specific countries or markets. Going forward, KGI HK will differentiate itself from Chinese investment banks listed in Hong Kong by primarily focusing on its Hong Kong and Southeast Asia exposure.


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