11 November 2016

CICC to buy China Investment Securities via reverse-takeover


A year after its listing on the Hong Kong Stock Exchange (HKEX), China International Capital Corporation (CICC) announced last week that it agreed to buy brokerage firm China Investment Securities (CIS) through a share swap. The acquisition will see sole owner Central Huijin Investment, a unit of sovereign wealth fund China Investment Corporation, make a full exit from the target.

Under the terms of the transaction, the seller will receive CNY 16,701 million (USD 2,458 million) worth of new CICC shares, representing a 52.5 per cent stake in the buyer’s enlarged capital. Pending approval from the China Securities Regulatory Commission, the deal is expected to close by the end of June next year.

As a full-fledged investment bank, CICC provides services such as equity and debt underwriting, financial advisory and fund management. It also has a private equity arm that invests in domestic and foreign assets within various industries, including the pharmaceutical, equipment manufacturing and renewable energy sectors.

Often called the “Goldman Sachs of China”, CICC has in recent years underwritten some of the country’s biggest deals involving state-owned companies. This includes Postal Savings Bank of China’s listing on the HKEX, which yielded HKD 57,627 million (USD 7,430 million) in proceeds two months ago. Largely reserved for government-linked subscribers, the mega deal was managed in conjunction with several foreign banking giants, such as JP Morgan, Goldman Sachs and Morgan Stanley. Prior to the initial public offering, CICC was also assigned to help the postal bank raise CNY 45,100 million in a private placing in 2015.  Perhaps most notably, CICC last year acted alongside Morgan Stanley and Bank of America as advisors to the CNY 76,280 million merger of train manufacturers CSR and China CNR, which was aimed at making the amalgamated group more competitive globally.

According to Bloomberg, the acquisition of CIS’s retail brokerage business signals CICC’s shift towards institutional and wealthy clients, which is expected to give the purchaser an edge over other local investment banks. With their combined resources, both companies will “enjoy synchronised development across business lines including investment banking, equities, FICC [fixed income, currencies and commodities], and investment management,” CICC stated in a press release. Additionally, the buyer will be able to tap into CIS’s retail network to boost its asset management business, the South China Morning Post reported. CICC’s strategic move came as households grow wealthier as a result of China’s robust economic performance, causing a surge in demand for investment products.

Following the announcement, CICC’s shares closed at HKD 11.38 on 7th November, down 2.1 per cent from the previous trading day.

© Zephyr