China International Capital Corp posted one of Hong Kong's best trading debuts of the year so far as its share price rose by 7.4% on Monday, bolstered by a supportive backdrop as investors welcomed the resumption of initial public offerings on the Chinese mainland.
Shares in the country’s first joint venture investment bank jumped to HK$11.04 by the close from its IPO price of HK$10.28. CICC cut the size of its IPO by almost 20% at the end of last month due to the more bearish outlook towards the Chinese securities industry at the time, raising $811 million as a result rather than the $1 billion originally targeted.
“I am very satisfied with the time of CICC’s listing. In both long-term and short-term, the time is a good choice,” CICC’s chairman Ding Xuedong said at a small media roundtable.
The Beijing-based bank’s strong debut follows China's lifting on Friday of a four-month ban on A-share IPOs and its promise that 28 companies previously cleared to list would do so before year-end.
It also took place at a time when the broader Chinese market is rebounding strongly after a tortuous summer, with the benchmark Shanghai Composite Index now up about 25% since August 26, closing the day up 1.6% on Monday.
CICC's strong first-day share performance is the second-best Hong Kong debut since 2010 by a financial institution with an IPO worth more than $400 million, according to Dealogic data. GF Securities, which raised $4.14 billion from an IPO in late March, jumped by 35% on its subsequent market debut.
According to its prospectus, CICC plans to use 45% of the funds raised from its IPO to develop its equity-related sales and trading and FICC (fixed-income, commodities and currencies) business. Another 25% will go on wealth management and investment management, while 20% will be used to enhance the investment bank's cross-border capabilities and global presence.
Bi Mingjian, CICC’s chief executive officer, said the listing has helped remove the “development bottleneck” for the bank – a lack of capital. “Seventy percent of CICC’s revenue came from manpower-related services. The proportion from the capital-generated services was small,” he said at the same media roundtable.
“If we don’t know how to utilise our balance sheet to provide [more complicated] services to our clients…we probably cannot seize the opportunities,” he said, referring to the opportunities created as disintermediation in the country’s financial services gathers pace, interest rates are cut, and controls on brokerage commission fees are relaxed.
Bi added CICC would also step up its efforts to develop a wealth management and investment management business.
“The wealth management business is just unfolding in China. With the growing middle class, the demand will be increasing,” he said, adding that CICC’s products will be tailored specifically for high-end clients.
Set up in 1995 as China’s first Sino-foreign investment bank between Morgan Stanley, China Construction Bank, and Singapore’s sovereign investment fund GIC, CICC was for years led by Levin Zhu, the princeling son of former Chinese Premier Zhu Rongji.
Last year, Levin Zhu resigned as chief executive offer after 16 years at the bank. Bi, CICC’s former investment banking co-head, rejoined the bank in March to take the helm.
CICC was well known for its strong performance in equity capital markets with a focus on clients with large assets. It played a prominent role in helping many prominent Chinese state-owned enterprises come to market in Hong Kong.
That includes the $22 billion listing of Agricultural Bank of China in 2010, the world’s-largest IPO until last year when Alibaba went public in New York, and the $21.9 billion IPO of Industrial and Commercial Bank of China in 2006, Dealogic data shows.
Due to its IPO strengths, CICC was once the most profitable Chinese brokerage houses. However, as most leading Chinese SOEs have now completed IPOs domestically and overseas, CICC’s ECM ranking has fallen.
Last year it ranked eighth among bookrunners of equity-linked deals in Hong Kong with a 3.6% market share and 11th in mainland China with a 2.9% market share. In terms of its investment banking revenue it ranked 15th in the Greater China area, behind Citic Securities, China Securities, and Guotai Junan Securities, Dealogic data shows.
“I hope CICC can return to the first echelon [of the league table],” said Ding, adding that with the development of China’s capital markets, the demand for investment banking services “will be growing.” He declined to offer a time-frame for CICC’s targeted resurgence.
CICC has in recent years diversified its client base beyond the SOE community. Last year, it worked on the IPO of Dalian Wanda’s property unit, China’s largest commercial property developer, and before that, in 2007, on the IPO of Fosun International. The two companies raised a total of $5.7 billion, according to Dealogic data.
CICC’s IPO is the latest of three jumbo mainland Chinese listings in Hong Kong since this summer’s A-share stock market rout. China Reinsurance, the country’s biggest reinsurance group by written premiums, and China Huarong Asset Management, the largest “bad bank” by assets on the mainland, went public last month, raising $2 billion and $2.3 billion, respectively.
CICC itself and ABC International were joint sponsors of the CICC IPO.