CICC Set to Make Very Substantial Acquisition; Shares Halted

Industry: Other 2016-11-04

China International Capital Corp. said it was set to announce a “very substantial acquisition,” four months after the investment bank said it was talking with China Investment Securities Co. about a possible tie-up.

Trading in CICC’s shares was halted in Hong Kong on Friday after the firm said in an exchange filing that a statement on the acquisition was pending. Calls to China Investment Securities’ office in Shenzhen weren’t answered.

“It’s a good fit strategically,” said Lucas Wang, a Hong Kong-based analyst at First Shanghai Securities Ltd. “CICC has been strong with high-net-worth clients, while China Investment has an extensive reach to small retail customers.”

Beijing-based CICC is trying to reinvent itself under Chief Executive Officer Bi Mingjian after its ranking as the top Chinese brokerage by revenue in 2005 tumbled to No. 23 a decade later. In July, CICC said it was in “very preliminary” discussions with China Investment Securities on “strategic cooperation and business opportunities” and it wasn’t certain that a transaction would proceed.

That statement came after Bloomberg reported that the two firms were said to be in talks about a possible merger. The companies had combined assets of 186 billion yuan ($27.5 billion) at the end of last year.

Different Market

“China’s stock market is different from other nations as it is dominated by small individual investors,” said Wang. “Without them, CICC faces the risk of being marginalized.”

Set up in 1995, CICC was part-owned by Morgan Stanley until that firm sold out in 2010. Run by Levin Zhu, the son of then-Premier Zhu Rongji, it brought some of the country’s biggest state-owned firms to market, becoming known as China’s answer to Goldman Sachs Group Inc.

As part of CICC’s efforts to drive a revival, it raised $811 million from an initial public offering in Hong Kong in November, earmarking money for expansions in equity sales and trading, wealth management and international business. Last year, surging income from brokerage commissions and asset management helped to drive up profit.

Shenzhen-based China Investment Securities was 17th in last year’s revenue rankings, while Citic Securities Co. was first, according to Securities Association of China data.

China Investment Securities is 100 percent owned by Central Huijin Investment Ltd., according to the brokerage’s website. Huijin, a unit of China’s sovereign wealth fund, owns 28.4 percent of CICC, according to CICC’s website.

Here’s how CICC and China Investment Securities compared in 2015, based on data from their websites and annual reports:

Assets: CICC, 94.1 billion yuan; China Investment Securities, 92.2 billion yuan
Full-year profit increase: CICC, 75 percent; China Investment Securities, 194 percent
Net income: CICC, 1.95 billion yuan; China Investment Securities, 3.6 billion yuan
Branches: CICC, 20; China Investment Securities, 160

— With assistance by Paul Panckhurst