Banking & Finance

Investment bank CICC to acquire China Investment Securities for 16.7 billion yuan

Deal marks major strategy change for CICC and to help expand its reach to small retail customers

PUBLISHED : Friday, 04 November, 2016, 7:13pm
UPDATED : Friday, 04 November, 2016, 10:59pm

Investment bank China International Capital Corp (CICC) said on Friday it would acquire China Investment Securities Company (CISC) for 16.7 billion yuan (US$247.2 million).

The purchase marks a major strategy change for CICC, which hitherto has focussed solely on institutional and wealthy clients, unlike other Chinese investment banks.

In a statement, CICC said that the two companies would be able “to achieve considerable synergies in various respects of business expansion,” by applying CICC’s strengths in high-end services to CISC’s customer base and network.

These developments would primarily take place in investment banking, equities, CICC, and investment management, the bank said.

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

Beijing-based CICC is purchasing Shenzhen-based China Investment Securities from Central Huijin Investment, a unit of China’s sovereign wealth fund China Investment Corp, which owns about 28.4 per cent of CIC, according to CICC’s website.

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 (US$27.5 billion) at the end of last year.

CICC also expects the acquisition to help it strengthen its asset-management business, as the firm can market some products to China Investment Securities’ retail network, one of the people said.

“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 marginalised.”

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.

At that time, CICC executives debated creating a retail network but didn’t proceed because of concerns about slim margins, people with knowledge of the matter said.

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

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