Boutique investment bank China Renaissance has set in motion a new business strategy the success or failure of which hinges on Beijing's ability to reanimate China's beleaguered capital markets.
The strategy will be spearheaded by a new team which will pursue Chinese companies listed on oversea's boards and usher them back to China, undoubtedly stressing the country's ample liquidity and the less demanding regulatory environment.
The goal of the strategy is to expand China Renaissance's investment banking business on the mainland, the statement said.
The Beijing-headquartered bank told FinanceAsia that the new team was set up in April and will expand to 15 people from around 10 currently by the end of the year. It said the majority will be recruited from the upper ranks of the country’s top brokerage houses -- experienced investment bankers with years in the trenches.
Dubbed the Onshore Capital Markets Solutions team, the desk will focus on the on-and-off trend of Chinese companies with plans to quit overseas markets and return to China for fundraising through initial public offerings and other transactions, the bank said in an English-language statement on Monday.
China's IPO market remains under suspension as the government tries to get a handle on the early summer stock market meltdown which saw mainland stock markets plunge by nearly 30% in three weeks after hitting historic highs in mid-June.
Home sweet home
“We expect the A-share market to become a principal focus of our investment banking activities,” Bao Fan, founder and CEO of China Renaissance said in the statement.
“The maturity of China’s capital markets offers an opportunity for companies listed abroad to promote their business in their home market with an onshore listing. We expect the recent trend of ‘go private’ bids to gain momentum as more companies see the strategic merit in this move,” he added.
Given the market's late-June crash, the "recent go private trend" Bao refers to was in fact inspired by a surge in Chinese stock markets earlier this year, which sparked a new wave of privatisations of US-listed Chinese e-commerce companies.
In mid-June, days before the market plunged, Chinese internet company Qihoo 360 Technology said it received a $9.1 billion buyout offer from a number of interested parties, naming its chairman and chief executive officer Hongyi Zhou and China Renaissance Holdings among a group that also included Citic Securities, Golden Brick Capital Private Equity, and Sequoia Capital China.
If completed the Qihoo 360 deal will stand as the largest take-private deal of a US-listed Chinese company to date. As it is, that title remains with Focus Media for its $3.4 billion take-private in 2013.
By early 2014 the pipeline of take-private transactions appeared to wane as the list of potential candidates dried up due to tougher financing conditions and rising US share prices.
Overseas-listed Chinese entities, especially tech firms started by entrepreneurs, are more like their Western counterparts in placing emphasis on posting solid financial gains while exhibiting a supra-national pragmatism and insider's grasp of China's capital markets that will likely see Bao's plea to return to the "home market" given a cool reception, at least until Beijing lifts the moratorium on IPOs.
It will be a much easier for boutique Chinese investment banks like China Renaissance to mitigate the clout factor enjoyed by Chinese technology firms listed on the New York Stock Exchange once the IPO spigot is turned back on and investors regain full confidence in mainland capital markets.
There and back
In recent years China Renaissance helped a batch of Chinese companies, notably tech firms, to go public in New York and Hong Kong.
Last year, it served as a lead adviser on the $2.05 billion IPO of online retailer JD.com, which stood as the largest US stock market listing by a Chinese company until it was eclipsed by Alibaba’s record-breaking $25 billion float a few months later.
Despite the recent volatility, often excused as the expected teething pains of the mainland's relatively young market, China's capital markets do have a few selling points for Chinese firms pondering a take-private.
With lower valuations, low trading volumes and tighter regulation of offer in the US, another surge on China's capital markets may well trigger another spate of Chinese firms turning away from US markets to re-list at home where they can likely secure higher valuations.
Preparing for thaw
The IPO suspension will end, as it has each time the government has imposed such a moratorium, although if precedent is anything to go by the last time the government intervened to suspend IPOs was in November 2012; the ban lasted 14 months and was never properly explained by the regulator. The shortest suspension lasted three months in 2001.
There is little doubt that the longer the ban remains in place the greater is the risk of spooking Chinese firms listed abroad that may have been good prospects for homecoming take-private exercises, and the fees derived therefrom.
The new team is being headed by Shanwei Wei, a former CEO at Ping An of China Securities (Hong Kong), who joined the boutique bank in July and will report directly to Bao Fan.
Previously, Wei also worked for Credit Suisse Founder Securities, an investment banking joint venture between Shanghai-based Founder Securities and Credit Suisse, and Citic Securities.
China Renaissance and Wei's new team appear to be planning ahead for the eventual and inevitable IPO thaw.
“The suspension of A-share IPOs is just temporary,” said a source at China Renaissance. “The establishment of the new team is to meet clients’ demand and is in line with the company’s long-term strategy.”
China Renaissance provides advisory on issues related to take-private deals, from converting corporate structure to preserve shareholder interests, to listing stock on domestic markets and advising on post-IPO M&A.
In addition to its work on the privatisation of Qihoo 360, the investment bank is involved in the return of some 30 so-called red chips, as stocks in large Chinese corporations with wide name recognition and multi-billion dollar valuations are sometime refer
Since its started operations in 2004 China Renaissance been regarded as a boutique investment bank specialising in finance and M&A advisory and consultancy services on behalf of Chinese firms in the TMT sector.
