Others News
- Bear deal shows CITIC's ambition
Date: 25-Oct-2007 Sources: (Shenzhen Daily)
FAST-GROWING CITIC Securities Co. is taking the first step towards becoming a global player by purchasing a US$1 billion stake in Wall Street investment bank Bear Stearns Cos.
A spectacular bull run in China's stock market over the past two years has given cash-rich CITIC, the country's largest listed brokerage, the financial muscle to buy into Bear, which has been hurt by the U.S. mortgage market slump.
In what would be the biggest overseas investment by a Chinese brokerage, the companies said Tuesday that they would take stakes in each other and form a broad strategic alliance.
CITIC, aware that China's stock market boom will not last forever, is keen to diversify its revenue base beyond traditional broking business and transform itself into a full-fledged investment bank. Bear's expertise should help that process.
But the alliance also gives the Shanghai-listed company its first major foreign foothold, in a way that seems calculated to minimize any U.S. political controversy, since CITIC can present itself as a white knight rather than as an acquirer.
China's financial regulators have this year been encouraging top institutions to expand overseas, to give China clout in global markets that matches its economic strength, and to balance heavy inflows of foreign investment into the country.
'This is a good opportunity for CITIC to expand overseas, and to learn from the global players,'said Qiu Zhicheng, analyst at Shanghai-based Haitong Securities.
A more than 1,000 percent rise in its stock price in the past two years has given CITIC, founded in 1995 and listed in Shanghai in 2003, a market capitalization of nearly US$47 billion, making it the world's third-largest investment bank by that measure, after Goldman Sachs and Morgan Stanley.
It is part of the government-owned CITIC Group, established in the late 1970s just as China was starting to open to the outside world.
CITIC Group now controls a sprawling empire that spans commercial banking, media and real estate. The group reports directly to the State Council, or Cabinet.
Bear Stearns and CITIC said they would form a joint venture in Hong Kong, the Chinese territory which is becoming the first stop for many Chinese companies and investors as regulatory reforms allow them to move overseas.
'Hong Kong will be our first overseas foothold, and CITIC can bring a lot of value to overseas investors with its background and experience on the mainland,'a CITIC Securities official, who asked not to be identified, said.
Taking advantage of the stock market bull run, CITIC has been aggressively expanding and diversifying its businesses, which now range from broking and underwriting to asset management and private equity investment.
The company is basking in record profits from surging securities commissions and stock underwriting fees. It estimated last Tuesday that its net profit in the first nine months of this year rose more than 750 percent from a year earlier to over 8 billion yuan (US$1.1 billion).
In August, it raised US$3.3 billion to finance expansion through a domestic share placement, the country's third-biggest share sale this year.
Last month, the company said it would merge its two fund management firms amid massive growth in the domestic mutual fund industry, which has grown to 3 trillion yuan from virtually nothing at the start of this decade.
This month it obtained a license from the government to invest clients' money in overseas financial markets.
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