CICC plans to float in HK next year

Public offering of the mainland's oldest securities house could jump-start a staff incentive scheme

China International Capital Corp (CICC), the mainland's oldest and most successful Sino-foreign joint-venture investment bank, may go public next year to become the first Hong Kong-listed mainland securities house.

Moderate immediate capital need for business expansion has led the Beijing-based firm to shelve an earlier proposal for a private share placement and fast forward to the listing, sources said.

'More than fresh capital, public flotation could provide an exit route for some of its private equity shareholders, jump-start a staff incentive scheme and help improve its corporate governance,' a banker close to CICC said.

A detailed initial public offering plan has yet to be worked out but the nation's largest investment bank favours Hong Kong as a listing venue to circumvent domestic restrictions on management incentive schemes and to raise its international brand awareness, a second source said.

Benchmarking against the valuations of Goldman Sachs and Morgan Stanley shares in the United States, a standard 25 per cent public float could raise $1 billion based on CICC's end-of-December book value of 2.02 billion yuan.

Morgan Stanley, the Government of Singapore Investment Corp (GIC) and Hong Kong's Mingly Corp, part of the Cha Group of companies, won special central government approval to set up CICC with China Construction Bank (CCB) in 1995, seven years before a mainland regulation made such Sino-foreign joint-venture investment banks possible without special state consent.

The head start and its close official ties gave it a substantial lead over more recent mainland joint ventures of CLSA, BNP Paribas Peregrine and Goldman Sachs set up under the 2002 rule.

Levin Zhu Yunlai, son of former Chinese premier Zhu Rongji, has been CICC chief executive since 2002. He, as well as Morgan Stanley's backing, is widely seen as instrumental to CICC's ability to clinch high-profile and lucrative deals to advise and arrange the privatisation of a long string of state giants, such as Sinopec, China Telecom, China Unicom, China Netcom and China Life Insurance.

In September last year, CICC revealed its intention to raise capital to expand its fledgling brokerage and asset management business to reduce its reliance on investment banking revenue.

The initial plan was to ask CICC's five existing shareholders for more capital, or should this prove insufficient, privately place shares to new investors, chairman Jesse Wang Jianxi said. He said listing was a longer-term goal rather than an immediate plan.

Morgan Stanley owns 34.3 per cent of CICC. GIC and Mingly, whose investments are more of the private equity nature, each holds 7.35 per cent. State-owned China Jianyin Investment inherited CCB's 43.35 per cent stake in CICC.

Sluggish domestic stock market has slowed CICC's expansion.

Having advised and arranged with Morgan Stanley and Credit Suisse the US$9.2 billion Hong Kong listing of CCB, the largest IPO globally since 2000, CICC's unaudited net profit nearly quadrupled to 587.96 million yuan last year.

Both reduced CICC's immediate funding needs.

Instead, listing is essential to CICC's plan to grant stock options and other incentive schemes to motivate its management and staff.