Goldman Sachs

Huarong split over investor plan ahead of Hong Kong IPO

As talks with Morgan Stanley and Goldman Sachs enter advanced stage, asset manager is divided over whether to bring in foreign partners

PUBLISHED : Wednesday, 24 July, 2013, 12:00am
UPDATED : Wednesday, 24 July, 2013, 7:46am

Morgan Stanley and Goldman Sachs are in advanced talks to take a stake in China Huarong Asset Management, sources told the South China Morning Post.

Huarong, the biggest of the four funds the central government set up to remove an estimated 1.4 trillion yuan (HK$1.76 trillion) of bad loans from the top four state banks as they prepared for initial public offerings, has reportedly been looking to raise up to US$2 billion by selling a stake of 15 to 20 per cent.

It remains unclear whether Huarong wants to get only one or several new investors in the last round of capital raising before the firm goes public, most likely in Hong Kong next year.

Huarong's main domestic competitor, China Cinda Asset Management, also one of the Big Four state debt clearers, is planning a Hong Kong listing this year.

Both Goldman and Morgan Stanley declined to comment. Huarong was not available for comment.

Sources familiar with the situation told the Post that Huarong's senior management was divided over whether to bring in foreign strategic partners before the listing, as many mainland banks have done in the past.

Since Beijing kicked off the reform for the banking industry in 2003, several major banks, including the Big Four, listed their shares in Shanghai and Hong Kong but only after selling a part of their stakes to foreign investors. But this strategy, once considered a normal practice, has come under fire lately as many of these investors have cashed out in recent years.

A big foreign investment bank can certainly help to raise the profile of Huarong, but you also have to ask yourself: 'what else can the foreign investor do for the company?'

"A big foreign investment bank can certainly help to raise the profile of Huarong, but you also have to ask yourself: 'what else can the foreign investor do for the company?'" said one of the sources, who declined to be identified because he is not authorised to speak to the media.

"I really think the situation is different now. It's no longer like 10 years ago, when Chinese banks and financial institutions were little known outside the mainland."

In May, Goldman raised more than US$1 billion by selling its remaining stake in Industrial and Commercial Bank of China, the world's largest bank by assets.

Goldman, which was an early investor in ICBC before it went public, made a net profit of nearly US$8 billion on its seven-year investment with that deal.

Its exit from ICBC and the killing it made in the process triggered a public debate on the mainland, with many beginning to ask whether Chinese banks had been sold too cheaply to foreign investors to begin with.

"Foreign investments in mainland financial firms, such as Goldman Sachs' investment in ICBC, are all based on the principle of mutual benefit that helps Chinese banks acquire things like brand recognition and investor confidence," said Ben Kwong Man-bun, a director at KGI Asia.