CICC Set to Make Very Substantial Acquisition; Shares Halted

(Bloomberg) -- China International Capital Corp. said it was set to announce a “very substantial acquisition,” four months after the investment bank said it was talking with China Investment Securities Co. about a possible tie-up.

Trading in CICC's shares was halted in Hong Kong on Friday after the firm said in an exchange filing that a statement on the acquisition was pending. Calls to China Investment Securities's office in Shenzhen went unanswered.

Buying China Investment Securities would mark a major strategy change for CICC, which stood out from other Chinese investment banks by focusing solely on institutional and wealthy clients. Under former Chief Executive Officer Levin Zhu, CICC executives debated creating a retail network but didn't proceed because of concerns about slim margins, people with knowledge of the matter said.

“It's a good fit strategically,” said Lucas Wang, a Hong Kong-based analyst at First Shanghai Securities Ltd. “CICC has been strong with high-net worth clients, while China Investment has an extensive reach to small retail customers.”

Beijing-based CICC is trying to reinvent itself under CEO Bi Mingjian after its ranking as the top Chinese brokerage by revenue in 2005 tumbled to No. 23 a decade later. In July, CICC said it was in “very preliminary” discussions with China Investment Securities on “strategic cooperation and business opportunities” and it wasn't certain that a transaction would proceed.

Different Market

That statement came after Bloomberg reported that the two firms were said to be in talks about a possible merger. The companies had combined assets of 186 billion yuan ($27.5 billion) at the end of last year.

CICC also expects the acquisition to help it strengthen its asset-management business, as the firm can market some products to China Investment Securities's retail network, one of the people said.

“China's stock market is different from other nations as it is dominated by small individual investors,” said Wang. “Without them, CICC faces the risk of being marginalized.”

Set up in 1995, CICC was part-owned by Morgan Stanley until that firm sold out in 2010. Run by Zhu, the son of then-Premier Zhu Rongji, it brought some of the country's biggest state-owned firms to market, becoming known as China's answer to Goldman Sachs Group Inc.

Hong Kong IPO

As part of CICC's efforts to drive a revival, it raised $811 million from an initial public offering in Hong Kong in November last year, earmarking money for expansion in equity sales and trading, wealth management and international business. Last year, surging income from brokerage commissions and asset management helped drive up profit.

Shenzhen-based China Investment Securities was 17th in last year's revenue rankings, while Citic Securities Co. was first, according to Securities Association of China data. China Investment Securities is owned by Central Huijin Investment Ltd., according to the brokerage's website. Huijin, a unit of China's sovereign wealth fund, owns 28.4 percent of CICC, according to CICC's website.

Here's how CICC and China Investment Securities compared in 2015, based on data from their websites and annual reports:

• Assets: CICC, 94.1 billion yuan; China Investment Securities, 92.2 billion yuan
  
  
• Full-year profit increase: CICC, 75 percent; China Investment Securities, 194 percent
  
  
• Net income: CICC, 1.95 billion yuan; China Investment Securities, 3.6 billion yuan
  
  
• Branches: CICC, 20; China Investment Securities, 160
  

--With assistance from Alfred Liu and Jun Luo To contact Bloomberg News staff for this story: Paul Panckhurst in Hong Kong at ppanckhurst@bloomberg.net, Cathy Chan in Hong Kong at kchan14@bloomberg.net. To contact the editors responsible for this story: Marcus Wright at mwright115@bloomberg.net, Darren Boey

With assistance from Paul Panckhurst, Cathy Chan