Citi Orient Securities JV

Citi finally enters China's A-share market

Citi pairs up with Orient Securities to launch a securities joint venture in China.

Citi and Orient Securities yesterday jointly announced the official opening of their China securities joint venture, Citi Orient Securities.

Orient Securities has a 66.7% stake in the new entity, with the remaining 33.3% owned by Citigroup Global Markets Asia — the biggest stake that foreign banks are allowed to own in Chinese securities joint ventures.

The Shanghai-based joint venture has registered capital of Rmb800 million and will engage in investment banking in the Chinese domestic market, including equity and debt securities underwriting.

Stephen Bird, CEO of Citi Asia-Pacific, who made it a top priority to crack Citi’s China JV code when taking on the top job at Citi in 2009 — a decade or so after the bank started looking — said the joint-venture aims to be the leading domestic investment bank in China.

Stephen Bird, Citi's Asia CEO

“Today marks the opening of one of our most important investments in China since we first opened in Shanghai in 1902,” Bird said in a statement. “Our partnership with Orient Securities will complement the work we already do globally for our Chinese clients. It underlines our commitment to offer clients local capital market solutions and we are honoured to be partnering with one of China’s leading local securities companies.”

Citi has already raised more than $20 billion from the capital markets during the past two years for Chinese debt and equity issuers, according to Dealogic and is advising Cnooc on its acquisition of Nexen, the country’s biggest-ever M&A deal.

Pan Xinjun, chairman of Orient Securities, will become the new chairman of Citi Orient Securities Company. Shengman Zhang, Citi’s co-chairman of Asia-Pacific, and Farhan Faruqui, Asia-Pacific head of corporate and investment banking, will represent Citi on the board. Both also played a key role in helping Citi cross the finishing line, say Citi insiders.

The joint venture company will employ about 200 full-time staff and will have a presence in Beijing, Shenzhen and Xinjiang.

While Citi is certainly coming late to the JV party, insiders say the bank is not concerned. “China is a marathon and not a sprint,” said a Citi banker. “Shanghai is currently the fifth-largest stock market in the world and is predicted to have the largest market cap by 2030 — China’s equity revolution is just starting.”

As with any JV, control is always an issue and Citi insiders say the key lesson learnt was to approach the JV as a partnership — and not the them-and-us attitude that has caused friction and troubles at many foreign JVs. The bank is not parachuting in a brigade of Citi bankers, said a source, who added: “We have a strong partner and there is no need to cause potential conflicts by trying to tell the local partner how to underwrite. Orient is already a leader, unlike many of the previous JV firms [that other banks have paired up with].”

But the bank is well represented. In terms of ownership, as with every other JV, the local partner has control, but Citi has a reasonable amount of management influence. It has one-third of the board seats and also appointed the compliance officer, finance officer, the deputy general manager and legal and HR functions. Orient’s Ma Ji was appointed as the chief executive officer.

The JV also underlines Citi’s continued expansion in China, where it has been growing in multiple areas. It has doubled its number of branches to 50 during the past three years, was the first global bank to issue sole-branded credit cards and has opened more than 25 Asia desks across the world to service Chinese multinational clients globally.

As a result, Citi reported more than $1 billion in revenues in China for 2011, the first time it topped that mark in the country.

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