Shares of ‘China’s Goldman Sachs’ jump after Alibaba raised its stake
- CICC soared by nearly 11 per cent in first trading after Alibaba announcement
- Alibaba makes its second investment into Chinese investment bank in six months
Shares of China International Capital Corporation (CICC) recorded their biggest intraday jump in 17 months after the world’s largest e-commerce platform raised its stake to become the third-biggest shareholder in the investment bank.
CICC shares jumped as much as 11.1 per cent, and closed up 5.8 per cent, at HK$17.90.
Alibaba Group Holding, which operates the world’s biggest online shopping platform and owns South China Morning Post, yesterday announced that it had paid HK$1.8 billion (US$230 million) to enlarge its stake in the Beijing-based bank to 11.7 per cent, from roughly 5 per cent.
That puts Hangzhou-based Alibaba behind the 12 per cent stake held by games publisher and social network operator Tencent Holdings in the Hong Kong market. Central Huijin Investment Company, a unit of the Chinese government’s sovereign wealth fund, remains the largest shareholder with 55.7 per cent stake on a fully diluted basis.
Founded in 1995, CICC is China’s biggest investment bank. Sometimes dubbed China’s answer to Goldman Sachs, CICC has been responsible for underwriting several of the country’s largest initial public offerings.
The Chinese bank was part-owned by Morgan Stanley until 2010, and had its shares listed in Hong Kong in 2015. China Construction Bank, one of the country’s biggest state lenders, was also a founding shareholder, transferring its stake to Huijin in 2004.
Alibaba bought 117.1 million CICC shares at an average price of HK$15.5 per share on February 14, according to the company’s filing. The company had previously acquired 85.8 million shares at an undisclosed price. The value of the whole deal has not been revealed.
With the additional investment, Alibaba now owns 4.8 per cent of CICC’s total issued shares on a fully diluted basis, and 11.7 per cent of its total issued shares in the Hong Kong market.
“Alibaba has lots of cash in hand so it wants to make foray into every strategically important industry – and finance is surely one of them,” said Wang Zheng, chief investment officer at Jingxi Investment in Shanghai. “It won’t care too much about short-term returns as China’s brokerage sector is still in winter. But in the long run, the investment return may be decent.”
It is not Alibaba’s first investment into China’s investment banks. Last August, Alibaba paid 3.5 billion yuan (US$512.3 million) for 3.25 per cent of Huatai Securities, becoming the Chinese broker’s fifth-largest shareholder.
“The Chinese economy has been growing but there lacks top-ranking investment like Goldman Sachs. CICC is trading at 18.7 times its earnings, which makes the deal good for money,” said Eric Wu, China portfolio manager of Myriad Asset Management based in Hong Kong.
