China International Capital Corp, a major Chinese investment bank, has taken the first steps for its long-awaited initial public offering in Hong Kong, through which it plans to raise about $1 billion.
The Beijing-based group filed its IPO application to the Hong Kong stock exchange on Monday and could go public as early as late September, according to people familiar with the matter.
“CICC is attempting to list in late September or October but this will still be subject to market conditions, especially against the backdrop of a volatile Chinese stock market,” a source with direct knowledge of the deal told FinanceAsia.
While it is too early to provide guidance on its potential valuation, the source said CICC will likely benchmark itself against one of its biggest domestic rivals, Citic Securities, China’s largest brokerage by market value.
The H-shares of Citic Securities reached an all-time high of HK$36 in April this year but have since lost about a third of their value as shares on the Chinese mainland have broadly tumbled. The stock price ended at HK$23.5 on Thursday, giving a valuation of about 1.99 times price-to-book and 14.9 times price-to-earnings.
The CICC flotation is one of a few in the pipeline by Chinese state-owned firms looking to list in Hong Kong. It is likely to provide a key test of investor appetite after Beijing introduced a series of extraordinary rescue measures to halt the market slide seen in Shanghai and Shenzhen over June/July.
Beijing's intervention triggered strong criticism from many foreign investors over the country’s willingness to subject itself to the rigours of market discipline.
Nonetheless, stock markets have shown some signs of stability in recent weeks. Since hitting a low of 3,384 points on July 9, the benchmark Shanghai Composite Index has put on 22% to close Thursday at 4,123 points.
CICC’s listing application comes after China Railway Signal & Communication Corporation, the world’s largest railway control system developer, began approaching investors for its $2 billion Hong Kong IPO on Monday.
CRSC's pre-marketing process will run through July 27, followed by a five-day roadshow and bookbuiding period between July 27 and 31. The company is targeting a listing on August 7.
Other mainland Chinese state-owned enterprises seeking to float in Hong Kong this year include China Huarong Asset Management, the country’s largest bad-debt manager, which plans to raise up to $3 billion, and China Merchants Securities, a large Chinese brokerage.
CICC history
CICC was set up in 1995 as China’s first Sino-foreign investment bank and brought together Morgan Stanley, China Jianyin Investment, Singapore’s sovereign investment fund GIC, Hong Kong investment company Minly Group, and China National Investment and Guaranty.
In late 2010, Morgan Stanley sold its entire 34.3% stake for $1 billion to a batch of institutional investors including GIC, American private equity firms KKR and TPG, and Singapore insurance company Greater Eastern.
Morgan Stanley’s exit was due to disputes with the venture's management over personnel, corporate culture, and CICC's dealings with other foreign banks, local media reported at the time.
Central Huijin Investment, the investment arm of the Chinese government, holds a controlling stake of 43% in CICC. GIC has 16%, while KKR and TPG each hold about 10%.
CICC was for years led by Levin Zhu, the princeling son of former Chinese Premier Zhu Rongji. Last year, Levin Zhu resigned as chief executive officer after 16 years at the bank.
The bank had originally planned to complete the deal by the end of 2014. But the IPO process was stymied due to slow regulatory approval as well as market concerns over its management restructuring in the post-Zhu era, according to sources familiar with the situation.
Former glories
Under Zhu’s leadership, the bank performed strongly in equity capital markets with a focus on clients with large assets, and expanded beyond Greater China to New York, London, and Singapore.
CICC played a significant role helping many prominent Chinese SOEs come to market in Hong Kong. That includes the $22 billion listing of Agricultural Bank of China in 2010, the world’s largest IPO until last year when Alibaba went public in New York, and the $21.9 billion floating of Industrial and Commercial Bank of China in 2006, the world’s largest lender by assets, Dealogic data shows.
Last year CICC also worked on the IPO of Dalian Wanda’s property unit, China’s largest commercial property developer, and on the IPO of CGN, the country's biggest Chinese nuclear energy producer. The two companies raised a total of $7.7 billion, according to Dealogic data.
However, market insiders said CICC’s development in recent years has been limited by its investment banking-based model, while its rivals on the mainland have been striving to develop more profitable capital-heavy business such as margin financing and securities brokerage services.
According to CICC’s preliminary prospectus filed late on Wednesday, the bank’s net profit doubled to Rmb357 million in the first quarter of the year compared with the year-ago period. The improved earnings were a result of increased fees and commission income, the filing showed.
In comparison, its two main rivals Haitong Securities and Citic Securities posted first-quarter net earnings of Rmb4.1 billion and Rmb3.8 billion, respectively.
Due to its IPO strengths, CICC was once the most profitable of China's brokerage houses. However, as most leading Chinese SOEs have now completed IPOs domestically and overseas, CICC’s ECM ranking has fallen.
Last year, it ranked eighth among bookrunners of equity-linked deals in Hong Kong with a 3.6% market share and 11th in mainland China with a 2.9% market share, Dealogic data shows.
The bank plans to use the IPO proceeds to help develop its equity-related sales, wealth management, and investment management businesses, as well as for general corporate purposes.
CICC itself and ABC International are leading the deal as joint sponsors.
