China fund turns to HK to sell $816 million Haitong Sec stake

HONG KONG (Reuters) - A Chinese state-backed investment firm sold its stake in China's fourth-largest broker Haitong Securities in Hong Kong on Wednesday in a sign that Beijing's bid to arrest a sell-off in mainland stocks is pushing investors to the island's market to raise capital.

"Hong Kong is coming under pressure as the sell-off in China deepens, with some investors realizing that the offshore markets may provide a welcome escape valve," said Francis Cheung, head of China and Hong Kong strategy at CLSA.

Chinese stock brokers have been particularly hard hit by the past month's plunge in mainland stock markets, which has wiped more than $3 trillion off investors' wealth.

Despite Beijing's efforts to stem the fall, China's benchmark indexes fell sharply again on Wednesday, taking their slide since mid-June to around 30 percent. Before the abrupt reversal, the indexes had more than doubled since November.

Hong Kong shares, which had held up relatively well during the early weeks of the mainland sell-off, have also fallen sharply in recent days, and were down more than 4 percent on Wednesday.

Dawn State Ltd, a unit of state-backed Haixia Capital Management, raised $816.3 million by selling the Haitong stake at an unusually large 20 percent discount to its last traded price, IFR reported on Wednesday. Shares in Haitong were suspended on Wednesday, but the wide discount prompted investors to dump other Chinese stock brokers.

Investors are worried that Beijing's move over the weekend to press 21 brokerages to commit about $19 billion to support mainland stocks could throw their business plans into disarray and hit profits.

On Wednesday, Hong Kong-listed shares of Chinese brokers plunged between 10 and 20 percent amid worries the broader China stock market slide is likely to crimp demand for their booming margin finance business. Just this year, Chinese brokers raised about $30 billion to grow their business.

Haixia Capital, based in the southeastern province of Fujian, managed 32.8 billion yuan ($5.3 billion) at the end of December. It wasn't clear what prompted Haixia to sell the stake, which would result in a loss of 38 percent in six months since it bought the 569.4 million shares at HK$17.89 each.

Dawn State Ltd sold 569.4 million Hong Kong-traded shares of Haitong at HK$11.12 each, the bottom of an indicative range of HK$11.12 to HK$12.00, added IFR, a Thomson Reuters publication. The price is equivalent to a discount of 20 percent.

UBS was sole bookrunner for the deal. Haixia Capital officials didn't immediately respond to requests for comment.

(Reporting by Fiona Lau of IFR and Saikat Chatterjee; Aditional reporting by Deena Yao; Writing by Denny Thomas; Editing by Will Waterman)