Citi's growth plans for Hong Kong

Citi's new Hong Kong country head Sim S Lim shares his views on the special administrative region's outlook.
A J-shaped antique Saudi Arabian sword, a bit shorter than Excalibur, longer than a GhurkhaÆs knife, hangs in a case in Sim S LimÆs office. He tells his staff (with a grin) that a sign should hang beneath it that reads: ôIf you donÆt make budget, break glassö.

Lim is CitiÆs new Hong Kong country officer and in his 24-year tenure with the bank, he has literally been through the wars. He lived in the Citi compound in Riyadh when it was bombed shortly after the second Iraqi war. His wife was home at the time and called him to say the front door had blown off its hinges, and the sky light in the ceiling had crashed to the floor, but the family was safe.

Then in 2001, he was head of risk treasury for the corporate and investment banking division in North America. That's the department that literally closes the dayÆs books with the Federal Reserve, and figuratively shuts off the lights and locks the door of the bank each night. He was working in New York City the day the World Trade Centre was bombed on September 11. Along with a handful of other bankers, from Citi and other banks, he holed up in a mid-town office into the early night so that the bankers could settle the trades for the day. He calmly describes it as ôthe worst of days but one that brought out the best in New Yorkersö. Competing bankers sat together and worked things out, he says: ôno one tried to gouge one another in an effort to make a quick buckö. Instead, they quietly behaved like gentlemen bankers.

Given his track record of working in places that attract catastrophe, one wonders if we should be happy that Lim is in Hong Kong. But Lim is unquestionably pleased with the prospects of leading the Hong Kong office.

ôThe single largest event of our lifetime is the re-emergence of China,ö says Lim. ôI think Hong KongÆs role as the gateway to China is becoming a reality and in 10 yearÆs time it will be the gateway out of China. The Chinese investment into Blackstone Group and the formation of CIC are the first steps of this.ö

Lim is referring to the establishment of China Investment Co, which the mainland government plans to use to invest $200 billion in overseas assets. Lim reasons that given that Hong KongÆs stockmarket capitalisation is $1.9 trillion, and Hong Kong is the sixth largest stockmarket in the world (as at end 2006) when the CIC invests in overseas equities, Hong Kong will be a logical investment destination.

Indeed, he expects the CIC to invest at least $2.2 billion in Hong KongÆs stockmarket, which obviously could boost Hong KongÆs asset management industry and provide banks, fund managers and other financial professionals with significant business opportunities. Lim reckons that CIC will invest less in H-shares and red chips than in local Hong Kong stocks for several reasons. First, the consensus of fund managers in the market is underweighting Chinese stocks. Second, the central government still owns a sizeable amount of H-shares in state-owned firms listed in Hong Kong, so from a risk-management point of view it doesnÆt make sense to buy more H-shares when youÆre trying to diversify. And so if you agree that China will invest roughly $2.2 billion in Hong KongÆs stockmarket, the CIC will likely allocate only about 0.7% of its global equity portfolio or $700 million to H-shares and red chips, leaving about $1.5 billion for investments in local stocks. That could prove to be a nice boost to the market.

LimÆs also pleased with the level of Hong KongÆs entrepreneurial growth, pointing to Citi-led IPOS for Hong Kong companies such as Pacific Textiles and Meadville Holdings, as proof that the entrepreneurial spirit is alive and well in Hong Kong.

Lim sees this generation of businessmen as one that will expand the general wealth of the city û they wonÆt chip away at the fortunes of the ultra wealthy, like the KS Li family, but theyÆll increase the number of new billionaires. To that end, Lim plans to expand the commercial and consumer wealth management banking sector of the Hong Kong business, segments that have traditionally been strengths of the local banks.

Of course, heÆs careful to point out that Citi will continue to build its investment banking footprint in Hong Kong. Consider that in the last three months, the bank has been advising on the MTR and KCRC merger (which passed Hong KongÆs Legco in June), Li & FungÆs $500 million debut Eurobond and the $245 million IPO of Pacific Textiles.

Breaking into new businesses while sustaining the old strengths wonÆt be easy, but Lim is clearly bullish. ôLook back at the past 10 years at what Hong KongÆs been through: first the Asian financial crisis, which essentially started on the day of the Handover of Hong Kong to China, then Y2K, then September 11 and then Sars. And today, in 2007, Hong Kong stands stronger than ever. And if you look at how tenacious Hong Kongers are û and I mean tenacious in the good sense of the word û I have no doubt they will be even stronger in 10 yearÆs timeö.

And if his staff have any doubt that he means business when he says he intends to build business, all they have to do is look at the sword hanging over his desk.
¬ Haymarket Media Limited. All rights reserved.
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