November 4, 2016 / 4:20 AM / 4 years ago

CICC to buy China Investment Securities for $2.5 billion

HONG KONG (Reuters) - China International Capital Corp (CICC) (3908.HK) plans to acquire China Investment Securities for 16.7 billion yuan ($2.5 billion) as the country’s leading investment bank seeks to bolster its retail brokerage business.

The headquarter building of China Investment Corporation (CIC) is pictured in Beijing, China, March 1, 2016. REUTERS/Jason Lee

Earlier on Friday, two sources with knowledge of the matter told Reuters that CICC was in advanced talks to buy the state-backed securities firm in what would be its biggest acquisition, and its first since listing in November 2015.

CICC’s Hong Kong-listed shares will resume trade on Monday after being suspended on Friday pending the announcement.

“The proposed acquisition will enhance the overall competitiveness of the wealth management business of the enlarged group and further promote the development of other businesses, including the investment banking business,” CICC said in a filing to the Hong Kong stock exchange.

Unlisted China Investment Securities, which is 100 percent owned by Central Huijin, had assets of 96.6 billion yuan, while revenue and other income totaled 12.48 billion yuan in 2015, according to the CICC statement.

Discussions between CICC and China Investment Securities have been underway for a couple of months, said the sources, who declined to be identified as the talks are confidential.

The deal, viewed by analysts as complementary for the two firms, will give investment banking-focused CICC the means to boost its retail business in a country where frequent trading by mom-and-pop investors has boosted revenues at brokerages.

Beijing-based CICC, the oldest investment bank in China, has played a crucial role in helping many large Chinese state-owned enterprises list in Hong Kong.

That includes the $21.9 billion initial public offering of Industrial and Commercial Bank of China (1398.HK) (601398.SS) in 2006 and the $22 billion listing of Agricultural Bank of China (1288.HK)(601288.SS) in 2010.


CICC is also recognized for its strong performance in major cross-border mergers and acquisitions by Chinese firms. It was second behind Morgan Stanley (MS.N) for China-related M&A last year with 11 percent of the market, Thomson Reuters data shows.

But its retail stock broking business is relatively small compared to rivals. China Investment Securities ranked 17th by operating revenue among China stock brokers last year with CICC six places below, according to data from the Securities Association of China.

BOCOM International chief strategist Hong Hao said the deal would benefit both CICC and China Investment Securities.

“CICC lacks a strong footprint in retail business, which is the expertise of China Investment Securities,” he said.

Shenzhen-based China Investment Securities runs about 200 retail branches across China compared with CICC’s 20, according to the two companies’ websites.

The deal also comes as CICC looks to diversify and broaden in areas such as fixed income, currencies and commodities.

China’s share trading turnover was $9.8 trillion in the first half of 2016, 1.7 times the rest of Asia-Pacific, according to financial services consultancy Quinlan & Associates.

Broking contributed more than a third of the combined revenue of 157 billion yuan at 126 Chinese securities firms’ over the same period, according to the securities association.

CICC, which was founded in 1995 by China Construction Bank (601939.SS), Singapore sovereign investment fund GIC [GIC.UL] and Morgan Stanley (MS.N) as China’s first Sino-foreign investment bank, was led for a decade by Levin Zhu, the princeling son of former Chinese Premier Zhu Rongji.

Zhu resigned as CEO in 2014.

Morgan Stanley sold its 34.3 percent CICC stake in 2010 to a consortium including KKR & Co (KKR.N) and TPG Capital [TPG.UL]. Central Huijin Investment Ltd, part of sovereign wealth fund China Investment Corp [CIC.UL], owns 28.45 percent of CICC.

($1 = 6.7550 Chinese yuan renminbi)

Additional reporting by Bengaluru newsroom; editing by Muralikumar Anantharaman and David Clarke

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