Royal Bank of Scotland has opened its China securities joint venture with Guolian Securities, making it the first British-based bank with a licence to underwrite stocks and bonds issued in mainland China.
The new entity is called Huaying Securities and is based in Wuxi, which RBS described in a release as “a booming city bordering Shanghai”. Even so, RBS’s ambitions are not limited to Wuxi or even Jiangsu province – it hopes to source investment banking business throughout China in a bid to capture a slice of the country’s red-hot IPO market and compete with the banks already running securities operations on the mainland, namely Goldman Sachs, UBS, Credit Suisse and Deutsche Bank.
“RBS has built one of the most comprehensive range of services offered by a foreign bank operating in China and this securities joint venture completes the last piece of our jigsaw puzzle,” said John McCormick, RBS’s Asia-Pacific chairman. “China is a core market for RBS and this joint venture allows us to participate fully in the opening up of China’s securities market, and to serve the needs of our global, Asian and Chinese clients.”
Huaying is the first securities joint venture to open in China this year, but J.P. Morgan and Morgan Stanley, which first announced tie-ups at the start of this year, could soon follow with the opening of their own China securities businesses.
Morgan Stanley is partnering with Huaxin Securities (also known as China Fortune Securities), while J.P. Morgan will team with First Capital Securities. The two banks won their licences on December 31 last year, while RBS secured its licence in November.
Like most securities joint ventures, Huaying will be two-thirds owned by the local partner while RBS will hold a one-third stake. A spokesperson at the bank said that RBS would have the right to nominate directors and senior executives.
“We are confident that with the mutual effort from both sides of the partnership, as well as the team in our securities JV, Huaying will become a leading Chinese securities house with international vision and expertise,” said Lei Jianhui, chairman of Guolian, which has been in business since 1992 and provides a wide range of security brokerage and financial advisory services across 40 branches in key cities in China.
RBS’s other operations in China include a locally incorporated bank headquartered in Shanghai, a wholly owned leasing company in Beijing, a 20% stake in a joint venture with Suzhou Trust and a 17% stake in Galaxy Futures.
Before the crisis, RBS owned a stake in Bank of China but sold it for £1.6 billion in 2009 as it tried to raise capital to stay afloat. It took £45 billion from British taxpayers to save RBS in the end, which was equivalent to the group’s previous five years’ pre-tax profits.
The Edinburgh-based bank did not say how much it paid to secure the joint-venture deal with Guolian, but it will hope the deal pays off with a lucrative share of China’s investment banking work.
As RBS pointed out in a statement announcing the new venture, China was the world’s biggest IPO market in 2010, with 346 newly listed companies raising $83.7 billion in the domestic A-share market, a 160% increase from the previous year in terms of capital raised.
This huge IPO market has attracted most of the headlines, but China also has its fair share of borrowers – last year, Chinese investment-grade companies raised more than $137 billion, ahead of Japan and the US.
Realistically, RBS faces stiff competition, not only from the existing joint ventures, but even more so from Chinese securities firms. To break its way in, Huaying plans to target China’s growing entrepreneurial sector: small and medium-size private businesses that are looking to raise money in the equity capital markets for the first time.
