By staff reporters Fan Junli and Qiao Xiaohui

A five-year pause for securities firm IPOs may be ending now that Everbright Securities is preparing for a pubic listing on the Shanghai Stock Exchange.

Everbright hasn't set a specific timetable, but it wants to be the second securities firm on the A-share market, joining Citic Securities. Other firms including Merchant Securities and Huatai Securities hope to follow suit.

Given the current bear market, which has seen the A-share index plunge 50 percent since its peak last October, some observers have questioned Everbright's timing. Market conditions also overshadow wishful proposals from other securities firms.

But interest in IPOs remains high. One reason is that this could be the last year for the foreseeable future that securities firms are allowed to launch new stock listings. In addition, firms can no longer issue stock through shell companies, and regulators are encouraging IPOs to replace the shell strategy.

A China Securities Regulatory Commission source said, “It may be possible that, from next year, a new round of tightening policies toward securities firms will begin.”

Everbright would be the ninth securities firms to list on the market, although only Citic (SHSE: 600030) went public through an IPO.

Everbright plans to issue up to 520 million shares to raise 10 billion yuan, based on an expected share price of 1.68 yuan and a price to earnings ratio (P/E) of about 13 to 16.

In 2007, five firms, including Haitong Securities (SHSE: 600837) and Guojin Securities (SHSE: 600109), listed through shell companies, taking advantage of the government's “share segmentation” reform program.

Everbright is the strongest of several firms that started pursuing IPOs last year. The others -- Merchant, Huatai, Eastern Securities and Western Securities -- have faced a variety of obstacles.

Huatai was accused last year of violating a securities rule against owning competitors when it paid 700 million yuan for a 70 percent stake in United Securities. A source close to Huatai said the two firms are now integrating with a view to restart the IPO project.

Merchant used to be the group's top IPO candidate. But listing may be tough because a major a shareholder -- Hong Kong-registered Merchant Bureau -- is technically an overseas investor.

Another hurdle stems from Merchant's decision to boost its stake in Boshi Fund Management to 73 percent. According to a source, Merchant promised CSRC that it would cut its Boshi stake to 49 percent after an IPO to comply with a rule that says no single shareholder can own more than 49 percent of a fund management firm.

But since Boshi's capitalization has shrunk 20 percent so far this year, a source said Merchant finds itself in a “Catch-22 situation. If they do not sell the stock, they are violating regulations. If they sell, the stock price that was 131 yuan per share would lower to only about 100 yuan per share. Even if they do sell, they are not allowed to sell at a lower price than they paid.”

Eastern and Western have problems of their own. Eastern's IPO was delayed due to a problem with its 2005 financial statement. Western has posted profits for six years, but its investment banking business is in infancy, disqualifying it from a first-tier listing.

A Western executive said despite the company's strong earnings “we are just getting started” in investment banking.

Everbright stands out as the strongest candidate, with 76 trading desks and a 2007 net profit of 4.68 billion yuan. Its stakeholders include the powerful, state-owned Everbright Group, with 41 percent, and Everbright Co. Ltd., with 39 percent.

But like other securities firms for whom traditional brokerage and proprietary businesses dominate revenues, Everbright faces performance challenges. The bearish environment has offered little chance for strong earnings in the first half of 2008.

These firms have yet to tap other business lines such as asset management, direct investment, stock index futures, and stock and margin lending -- any of which could improve revenue structures and make them less vulnerable to market fluctuations.

Everbright's brokerage business was the top revenue source last year at 164.1 billion yuan, while proprietary businesses contributed 118.5 billion yuan and investment banking generated 13.6 billion yuan. In contrast, the firm's asset management business yielded only 4.5 billion yuan.

1 yuan = 14 U.S. cents