CICC shares soar 18pc as Tencent spends US$372m for a 5pc stake in the bank

Deal brings together two of China’s most pioneering companies from the tech and finance industries

PUBLISHED : Wednesday, 20 September, 2017, 10:46pm
UPDATED : Thursday, 21 September, 2017, 10:57pm

Shares in China International Capital Corporation (CICC), one of the country’s most prominent investment banks, soared 18.2 per cent in Hong Kong on Thursday, after technology giant Tencent Holding revealed it was acquiring a stake in the business.

CICC shot up to more than a one-year high of HK$18.48 within minutes of the market opening and closed at HK$18.32, while Tencent edged up by 0.2 per cent to HK$347.2.

Tencent agreed to invest HK$2.9 billion (US$372 million) for a 5 per cent stake in the bank, CICC said in a stock exchange filing on Wednesday night.

“It is absolutely good news as CICC has managed to attract such big inflows of capital, which would strengthen its balance sheet and allow business expansion,” said Brock Silvers, managing director of Kaiyuan Capital, a Shanghai-based investment advisory.

“But personally, I cannot figure out a good reason for Tencent [to invest]. I don’t think CICC’s strengths help a lot in better tapping and monetise the huge number of customer accounts Tencent owns... Tencent maybe just has too much money now, that it doesn’t know what to do with,” he said.

The deal essentially links two of China’s strongest firms in the technology and finance sectors, and underlines just how financially strong the country’s new technology companies have become, replacing foreign banks as the favoured partners of domestic lenders.

People close to the deal told the Post the agreement brings complementary advantages for both sides, particularly in terms of developing financial technology.

Founded in 1995, CICC was China’s first joint venture investment bank, a tie-up between the state-owned China Construction Bank and Morgan Stanley. The latter sold its stake in CICC in 2010.

Tencent has agreed to buy 207.5 million new H-shares of CICC, representing 12.01 per cent and 4.95 per cent, respectively, of the total issued H-shares and the total issued shares of CICC, on a fully diluted basis.

The subscription price is set at HK$13.80 per share, representing a discount of around 10.97 per cent on its closing price of HK$15.50 on Wednesday.

The completion of the deal is subject to approval by the relevant regulatory authorities.

If approved, Tencent will become the third largest shareholder of CICC, after state-owned Central Huijin Investment Ltd, and Singapore’s sovereign wealth fund GIC Private.

“Simultaneously, CICC and Tencent have also entered strategic cooperation framework agreements,” the filing said.

“To promote the effective implementation of such cooperation, CICC and Tencent will set up a steering committee, co-chaired by the senior management of both companies.”