FINANCE: CICC Looks For Story To Sell In IPO Run-Up
Bottom line: CICC’s IPO later this year will attract lukewarm investor interest due to its fading prospects, forcing it to scale back its plan to raise up to $1 billion.
A new story on homegrown investment bank CICC is casting a spotlight on the kind of interesting but also somewhat uninspiring Chinese companies that are likely to make offshore IPOs this year, after last year’s bumper crop of offerings that included a far more exciting field of candidates. Yesterday I wrote about Legend Holdings, parent of PC giant Lenovo (HKEx: 992), which wants to raise $2-$3 billion through a listing in Hong Kong. Like Legend, China International Capital Corp (CICC) is a company that’s unlikely to excite investors but could still draw a some interest as a decidedly second-tier player.
The story in today’s headlines is casting CICC as a former financial superstar that has lost its way, and is now seeking to rebuild itself as it aims for a Hong Kong IPO later this year. (English article) That’s probably a fair characterization, though I would argue that CICC’s biggest asset all along was its government connections. Much of those came from the “princeling” status of its former chairman Levin Zhu, who also happened to be the son of former Premier and economic czar Zhu Rongji.
I’m not a huge follower of Chinese politics, but I do know that Zhu Rongji is part of the “Shanghai Clique” that rose to power in 1989 after the downfall of former Premier Zhao Ziyang. That group was led by former Shanghai Mayor Jiang Zimin, who became China’s president but is now aging and has several times been reportedly close to death.
The fading of the Shanghai Clique seems to have a direct correlation to CICC’s own fate over the last decade. Originally founded as a Chinese joint venture with Morgan Stanley (NYSE: MS), the company was once a household word in China’s financial community, and its name was present on nearly any and every major IPO involving a big Chinese state-run company after its founding in the mid 1990s.
But CICC turned out to be largely a one-trick pony, drawing on its strong government connections to get hired for most of China’s biggest IPOs as it listed its major banks, energy companies and telcos in Shanghai and Hong Kong. CICC loved to see its name appear alongside other major global investment banks, but was never able to expand its influence beyond China. Morgan Stanley gradually became disillusioned with the investment due to its own lack of control, and a telling moment came in 2010 when it finally sold its stake in the company.
CICC passed a dubious milestone last year when Levin Zhu resigned as its CEO, reportedly to pursue a career in the tech sector. (previous post) That was quickly followed by the departure of CICC’s Chairman Jin Liqun, leading some to say the company was self destructing. Bi Mingjian, who ran CICC’s investment banking business in its heyday, took on the CEO job in March, and will formally see the company through an IPO that could raise up to $1 billion.
After this quick tour through CICC’s history, it’s not difficult to see why the company has lost much of its earlier glory and could be a so-so prospect for investors. I’m sure that Bi is a capable investment banker, but without the connections from the Shanghai Clique it’s far from clear whether he’ll be able to beat out the competition in bidding for new deals.
Making matters worse, China is opening the financial services sector to private companies, which could provide even more new competition. E-commerce leader Alibaba (NYSE: BABA) has been among the most aggressive of those, and I have little doubt that it and many others will pile into investment banking as soon as they are allowed. That doesn’t mean there’s no place for CICC in China’s future financial landscape, but I would expect it to ultimately end up as a mid-tier player with limited growth prospects when it finally settles down under its new management.
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