(Yicai Global) Jan. 3 -- Shares of Huatai Securities plunged after the Chinese brokerage said it intends to issue new shares to existing shareholders in Shanghai and Hong Kong to raise up to CNY28 billion (USD4.05 billion) to supplement its working capital.

In Shanghai, Huatai [SHA: 601688] closed down 6.7 percent at CNY11.89 (USD1.70), resulting in a slump of nearly 33 percent in the past year. Its Hong Kong-listed stock [HKG: 6886] closed 2.6 percent lower at HKD8.70 (USD1.10).

The securities firm offers three shares per 10 to existing stockholders via a rights issue to increase its registered and working capital, the Nanjing-based company said in a statement on Dec. 30. A rights issue allows cash-strapped firms to sell discounted shares to their investors, which tends to result in a stock price decline due to a diluted earnings per share.

Huatai said that a maximum of CNY10 billion of the proceeds will be used to develop brokerage services including financing and margin trading, and no more than CNY8 billion (USD1.2 billion) will be spent on business expansion related to investing and transactions.

The brokerage is still profitable as in the first three quarters of 2022, Huatai earned CNY7.8 billion in net profit and CNY23.6 billion in revenue.

Since January 2022, eight listed securities brokers in China have refinanced via private placements, rights issues, and convertible bonds to raise nearly CNY90 billion. Next, China International Capital is preparing a rights issue of CNY27 billion.

The acceleration of fundraising is partly caused by intensifying competition and rapid innovation growth, China Securities Journal reported, citing an insider. Brokers need to be equipped with sufficient funds to support their transformation, the source added. Moreover, securities firms need to keep their capital in line with their business scale to control risks related to credit and operations.

Editor: Emmi Laine, Xiao Yi