Awards: Why Citic Securities stood out on the Belt & Road

We are setting out the rationale for the choices made in our Country Awards. In China, ICBC was the top bank but Citic Securities picked up the most awards — including in a new category.

In May, FinanceAsia named the winners of its annual Country Awards for Achievement. In June, we'll present the awards at our annual awards dinner in Hong Kong.

This year, our awards have a new category. Recognising the growing influence of China and its Belt and Road Initiative, we're handing out a Best Belt and Road Bank prize in selected markets. Fittingly, the first such award comes in China.

BEST BANK: ICBC

Industrial and Commercial Bank of China (ICBC), the world’s largest lender by market cap, managed to maintain its profit margins and a health balance sheet, despite Beijing’s ongoing crackdown on shadow banking and a steady pickup in corporate defaults.

The Beijing-based lender posted a net profit of Rmb286.05 billion ($44.7 billion) last fiscal year, up 2.9% on 2016. The full-year results beat analysts’ estimates due to its ability to control costs while eke out additional yield.

Thanks to a higher inter-bank funding costs and a declining M2 growth rate, the bank’s net interest margin – the difference between the cost of funds and yields on loans – rose by 18 basis points quarter-to-quarter to 2.37% in the fourth quarter, according to its 2017 annual results published in late March this year.

With a strong retail franchise across China, the bank has leveraged its strong deposit base and allocated more of its capital into higher-yield assets. Net interest income, which accounted for 77.3% of its operating income, rose 10.6% year on year to Rmb522 billion.

Also important is an apparent improvement in asset quality. Its non-performing loan (NPL) ratio dropped by 7bp year-on-year to 1.55% at the end of December last year, which bank president Gu Shu attributed in April to the country’s improving economic conditions. ICBC’s NPL ratio was lower than the industry average of 1.74%, according to data compiled by the China Regulatory Banking Commission.

That said, there are signs of a rebound in soured assets. The amount of “special mention loans” — those in the pipeline that could potentially become NPLs – steadily increased over the course of last year, adding 5bp to 3.95% of total loans in the second half. With the government still looking to squeeze debt out of the Chinese economy and a liquidity crunch evolving, asset quality will remain in focus.

BEST INVESTMENT BANK: CICC

China International Capital Corporation, the country’s first joint-venture investment bank, sealed its position as FinanceAsia’s top Chinese investment bank with another strong all-round performance during our review period.

The Beijing-based lender’s ability to help Chinese companies acquire overseas assets and raise capital in both equity and debt markets are important elements that set it apart from its major rivals in the hotly contested mainland market.

The past year saw CICC pass another milestone in China-related mergers and acquisitions, advising on $27 billion worth of outbound deals and $28 worth of domestic deals, according to data compiled by Dealogic. It ranked second in the country’s outbound M&A league table with a market share of 4.04%, just a tad below Goldman Sachs’s 4.84%. In domestic M&A, CICC maintained its pole position and advised 8 out of the 20 largest Chinese domestic transactions in 2017, with a market share of 15.9%.

Landmark deals include the $20.5 billion acquisition of Singapore-listed Global Logistic Properties, the largest operator of warehouses in Asia, by a group of Chinese investors. CICC advised this consortium, which comprised Hopu Investment Management, Hillhouse Capital Group, Vanke Group and Bank of China Group Investment, providing strategic advisory services to aid the purchase.

In domestic M&A, CICC was an financial advisor to China Unicom’s Rmb74.7 billion ($11.6 billion) share sale to a group of 14 investors in August last year, the first company to respond to Beijing’s call to diversify its shareholding structure.

Beijing-based CICC was traditionally known for winning lucrative IPO mandates from state-owned enterprises. But in recent years the bank has also expanded into other areas such as fixed income and wealth management. According to data compiled by Wind, CICC ranked fifth in the domestic debt capital markets league table, with Rmb2.5 billion-worth of bonds in 325 deals. The number of its wealth management clients rose by 28.9% year on year to 38,644 at the end of 2017, with its assets under management rose by 19.1% to Rmb736.886 billion.

BEST ECM HOUSE, BEST DCM HOUSE, BEST BROKER: CITIC SECURITIES

As a top underwriter of both equity and debt deals in China, Citic Securities was the clear choice for both these awards. And a widely-recognised research team that covers more than 1,000 mainland companies made it the go-to bank for both institutional and retail investors.

According to data compiled by Wind, the Beijing-based broker defended its pole position in China’s equity capital markets league table, helping to raise Rmb220 billion ($34.4 billion) across 87 deals. It participated in three out of the 5 largest IPO, including being the sole bookrunner in Huaxi Securities’ $775 million listing in January, the largest during our review period.

At the same time, Citic has stepped up its game in convertible bonds and asset-backed transactions. This demonstrates that it is keen to expand into other structural products, including a Rmb30 billion convertible bond for China Everbright Bank, the second-largest of its kind in China, plus asset-backed securities issued separately by the Chinese units of German carmaker BMW and Japanese carmaker Toyota.

When it came to helping Chinese corporate borrowers tap the domestic bond market, Citic also kept ahead of the chasing pack by helping to raise $55 billion across 367 transactions during the award period. With an overall market share of 8.34%, it acted as a joint bookrunner, for example, on Bank of Beijing’s debut green bond, which raised Rmb15 billion in five tranches, and on Hua Xia Bank’s Rmb30 billion deal, the largest high-yield bond issue sold during our review period.

In 2017, its brokerage business ranked second in Chinese equity trading, with a market share of 5.69%. Its total trading volume of stock and funds during the year was Rmb13.05 trillion as it grew its client base by 15% to 7.7 million.

BEST PRIVATE BANK: CHINA MERCHANTS BANK

CMB Private Banking is China’s largest private bank by client assets, with more than 60 private banking centres all over the country and around 1,000 service providers. Founded in 2007, it served 67,000 onshore private banking clients with total assets under management of around $302 trillion by the end of last year, up from 58,300 clients and $226 trillion as of the end of 2016.  To better serve its clients, the number of its relationship managers expanded by 38 over the same period.

Its diversified product offering and ability to secure returns from volatile markets for the high net worth individuals it services – which it defines as clients with assets of more than Rmb10 million – is another reason for winning the award.

The bank’s pre-tax profit reached $733 million last year in part thanks to strong inflows, which rose 33.6% year on year to $76 billion.

Beyond China it has a global footprint that includes Hong Kong, Singapore, New York and Sydney, as the wealthy Chinese clients invest heavily in residential property in developed markets, and some set aside money for the boarding fees of their offspring.

BEST BELT AND ROAD BANK: CITIC SECURITIES

Getting your proverbial ear very close to China’s top regulators is a decent strategy for making corporate friends. This is no more so the case than when getting to grips with what government perks are on offer for corporates looking to tap Belt and Road capital market opportunities.

Citic Securities pitches itself as “the bridge” between the regulators and the market for the latest updates on Chinese markets policy. As the government accelerates the opening up of the domestic bond market to support its Belt and Road Initiative, Citic Securities has been at the heart of efforts to coordinate banner debt issuances.

One perfect example is its role as lead underwriter in helping get one of the first Belt and Road bonds off the ground – a $500 million deal issued by Hengyi Petrochemical. The money raised will be used to fund construction projects in Brunei.

Because of its official Belt and Road status, Citic Securities was able to claim that the China AA+ rated petrochemicals company got a lower issuing rate than its peer group, based on historical transactions. It also became the first publicly issued Belt and Road corporate bond on the Shenzhen Stock Exchange.

Citic Securities was also the lead underwriter for at least two other similar Belt and Road capital market transactions – a Rmb3 billion ($467 million) bond deal from TBEA, a Chinese power transformer manufacturer, and a Rmb2 billion bond issued by the China National Building Material Company.

BEST INTERNATIONAL BANK: HSBC

HSBC once again gets all the accolades for maintaining its leading position in Chinese commercial and investment banking.

While it continues to dominate the offshore bond market, the bank is also now getting into the onshore panda bond market, which comprises onshore renminbi-denominated debt sold by foreign issuers. In 2017, HSBC acted as a joint underwriter on British Columbia’s Rmb1 billion three-year panda bond and as a joint bookrunner on Hungary’s debut panda bond.

While small, the panda bond market is part of Beijing’s long-term commitment to open up its domestic capital market and internationalise its currency. As David Liao, president and chief executive officer of HSBC China, told FinanceAsia: “There is a huge interest in raising money in the onshore panda market and the potential is plentiful.”

In mergers and acquisitions HSBC continued to leverage its local knowledge and global network to provide strategic advisory to its Chinese clients looking to expand beyond their home country. It acted as sole financial advisor to Zhejiang Geely on its acquisition of stakes in Proton and Lotus from DRB-Hicom of Malaysia. The transactions were of strategic value to Geely, China’s second-largest privately-owned carmaker, after its high-profile purchase of Swedish carmaker Volvo in 2010. HSBC also acted as sole financial advisor to China Eastern Airlines on its acquisition of a 10% stake in Air France – the first investment by one of China’s three biggest state-owned airlines in a Western carrier.

The bank’s business in China is also continuing to grow in 2017. HSBC China’s operating income rose by 3.3% to Rmb10.74 billion, while its total assets expanded by 11% to Rmb467.9 billion, the bank said in its annual report.

Established in March 2007, HSBC China operates 34 branches and 144 sub-branches in the country, providing full-fledged services to its institutional and retail customers on the Chinese mainland.

BEST INTERNATIONAL INVESTMENT BANK: GOLDMAN SACHS

Goldman Sachs is our winner in this category this year because of its consistently solid performance across a range of business lines. At the time of growing trade tension between US and China, the bank’s diversified portfolio of deals and products added to its strength.

With other bulge-bracket firms also bringing their marquee transactions to the table, competition for the award was intense. But it was Goldman Sachs’s performance in the domestic and international equity capital markets that helped set it apart from the rest.

Goldman was the sole placement agent on KKR’s $299 million sale of Shanghai-listed shares in Qingdao Haier in November 2017, showcasing its ability to bring international practices to China’s capital market. To be sure, the selldown of Qingdao Haier shares — a block trade that enabled a private equity firm to exit its investment despite China’s more stringent regulations around selldowns —  was not the first of its kind in China. But then it was Goldman Sachs that first launched the practice in 2015, when it was the sole bookrunner on Hang Seng Bank’s $2 billion selldown in Shanghai of Industrial Bank shares, which was followed three months later by the sale of another $2.7 billion-worth of shares in the bank. Since the Haier block trade last year, Goldman Sachs has executed four additional similar blocks for KKR to slowly trim its position in the appliance maker.

Goldman Sachs also leveraged its strong knowledge of the US market to bring a slew of Chinese technology companies to New York. During our review period, the bank worked on seven of these US listings, including Baidu-backed video streaming firm iQiYi’s $2.4 billion float in March, the largest initial public offering during our award period, and Alibaba-backed logistic firm BEST’s $517 million share sale in September.

On the M&A front, Goldman Sachs acted as a lead financial advisor to Blackstone on its €12.3 billion ($14.5 billion) sale of Logicor, the largest logistic real estate platform in Europe, to China Investment Corporation, the country’s sovereign wealth fund. Goldman Sachs was also a lead joint financial adviser for the $20.5 billion takeover of Global Logistic Properties last year, the only bank advising Blackstone across all strategic options for the business, including a potential IPO.

In debt capital markets it worked on Alibaba’s $7 billion multi-tranche debt offering in November as a joint bookrunner. It was also a joint bookrunner on US dollar debt sales undertaken by State Grid and China Petrochemical, also known as Sinopec.

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