CICC explores possible IPO

Chinese investment bank looks to replenish its capital, sharpen its competitive strategy and strengthen its incentive scheme through a listing.
CICC’s listing plan has received consensus in management, as well as shareholders who think it is a good incentive.
CICC’s listing plan has received consensus in management, as well as shareholders who think it is a good incentive.

China International Capital Corp (CICC), the first Sino-foreign investment bank, looks set to tap the capital markets, following in the footsteps of peers Citic Securities and Haitong Securities.

The Beijing-based group set up an informal committee two months ago to explore a possible listing, according to two sources familiar with the situation.

Issues that the committee are seeking to address include the pros and cons of an IPO, the problems facing the company, and the strategies needed to tackle the problems.

“It (an IPO) is only a matter of time”, one of the sources told FinanceAsia. But sources said there is no timetable or targeted fundraising size for a listing yet.

The source also said CICC is “most likely” to list in Hong Kong. The other option is a dual listing in both A-and H-share markets. However, the chance of a simultaneous listing is slim, as the domestic stock market has remained closed for IPOs for eleven months and it is time-consuming for any issuer to secure regulatory approvals.

CICC’s listing plan has received consensus in management, as well as shareholders who think it is a good incentive, according to another source.

The company was founded in 1995 as a venture between Morgan Stanley, China Jianyin Investment, Singapore’s sovereign investment fund GIC, Hong Kong investment company Minly Group,  and China National Investment and Guaranty.

However, Morgan Stanley disposed of its 34.3% stake in 2010 to institutional investors including KKR, TPG, GIC and Singapore’s insurance company Greater Eastern.

Morgan Stanley’s exit was due to disputes with the venture's management over personnel, corporate culture and CICC's dealings with other foreign banks, media reported at that time.

Central Huijin Investment, which is owned by the Chinese government, now holds a controlling stake of 43.4% in CICC.

 “An IPO is a natural and inevitable choice to CICC, which has lagged behind in development during the last years”, said Hong Jinping, a Shenzhen-based analyst with China Merchants Securities.

According to analysts, CICC’s development has been limited by its investment banking-based model.

Traditionally, CICC focuses on clients with large assets, most of which are understood to be state-owned groups. Sources said CICC once had a minimum requirement for corporate clients of not less than Rmb5 million.

However, with large state-owned companies experiencing deteriorating market conditions and retail business booming, CICC hopes the IPO will give it the funds to better exploit this thriving segment, which has an overall return of 10%.

CICC is mainly concentrated on deal underwriting. Its strength in equities capital markets has gained the bank the top position in terms of net profit among all domestic securities houses in 2009, according to Dealogic data. But the shrink of the IPO market since then took the toll on CICC’s balance sheet.

“Once CICC gets listed, it can develop capital-heavy business such as margins and equity pledge.  It can also use the funds raised to expand branches for retail distribution business,” said CMS’s Hong.

Rivals Citic Securities and Haitong Securities have both listed. Citic listed in Shanghai in 2003 and in Hong Kong in 2011, while also raising Rmb25 billion through an A-share placement in 2007. Last year, it topped the mainland investment banks with net profit of Rmb222 million. 

Haitong listed in Shanghai and Hong Kong in 2007 and 2012, respectively. The year-on-year net profit of Haitong during the first half this year exceeded Citic’s for the first time.

 

 

 

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