CICC to Acquire China Investment Securities for $2.5 Billion

(Bloomberg) -- China International Capital Corp., the bank that has brought some of the country's biggest state-owned firms to market, agreed to buy China Investment Securities Co. to gain a foothold in the retail-brokerage business.

CICC, known as the Goldman Sachs of China, will acquire the brokerage from Central Huijin Investment Ltd. for 16.7 billion yuan ($2.5 billion), the Beijing-based firm said Friday in a statement. Huijin, a unit of China's sovereign-wealth fund, and other unnamed parties own 28.6 percent of CICC, and that stake will rise to 58.7 percent after the deal is completed.

Buying China Investment Securities marks a major strategy shift for CICC, which stood out from the nation's other 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 that doing so would crimp margins, people with knowledge of the matter have said. The companies had combined assets of 186 billion yuan at the end of last year.

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

Trading Halted

Trading in CICC shares, which have declined 7.9 percent this year, was halted in Hong Kong Friday after the firm said in a filing that a statement on the acquisition was pending. CICC has been granted a waiver by the Hong Kong Stock Exchange so that the deal will not be treated as a reverse takeover, according to the statement.

Set up in 1995, CICC was part-owned by New York-based Morgan Stanley until 2010. Run by Zhu, the son of then-Premier Zhu Rongji, CICC brought some of the country's biggest state-owned firms to market. 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.

CICC raised $811 million from an initial public offering in Hong Kong last November, 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.

“The wealth-management industry of China is entering a period of rapid growth against a background of increasing household wealth and strong demand for investment products and related services,” CICC said in the statement. It estimated that China's total household assets increased 60 percent to 176 trillion yuan from 2012 to 2015.

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.

--With assistance from Paul Panckhurst and Cathy Chan To contact the reporter on this story: Steven Crabill in New York at scrabill@bloomberg.net. To contact the editors responsible for this story: Peter Eichenbaum at peichenbaum@bloomberg.net, Alan Goldstein