Corporate and investment banking: Competition rises in China
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Northeast Asia

Corporate and investment banking: Competition rises in China

Drive, reach and contacts separate the winners from the rest of the pack.

By Allen Cheng


Until a few years ago, Huatai Securities was just a medium-sized securities house with outsized ambitions. It lacked the kind of big backers that carry a lot of weight either in Beijing, China’s political capital, or in Shanghai and Shenzhen, its financial centres. But thanks to its strategy of focusing on private enterprises, the firm has won market share from much bigger rivals – some of which were founded by the offspring of former Chinese leaders, who still wield considerable power in Beijing.

The brokerage house started out in Nanjing, in Jiangsu province, but its business expanded across the country and into the US after the acquisition of AssetMark in 2016. Meanwhile, its specialized investment banking subsidiary, Huatai United Securities, has shown entrepreneurial flair, clawing its way up the league tables in China’s highly competitive corporate and investment banking industry. Its success lies in its decision to focus on China’s rising number of private entrepreneurs.

Since 2004, Huatai’s merger and acquisition business has advised more than 200 private enterprises in both onshore and offshore M&A. To demonstrate its commitment to clients, the firm even created a $2 billion M&A fund, which it uses to co-invest with its clients on various deals.

LAO Zhiming-160x186
Lao Zhiming,
Huatai United

According to Chinese financial data provider Wind Information, Huatai rose from 10th place in the equity capital market league tables in China in 2013 to rank fifth in 2017. In the first six months of 2018, according to Wind, Huatai shot up the ranks to second place, with 19 deals and Rmb91.3 billion ($13.3 billion) in funds raised.

Huatai’s energetic rise helped it win the award for China’s best corporate and investment bank for privately owned enterprises in Asiamoney’s 2018 China corporate and investment bank awards. It is one of seven Chinese institutions recognized for their excellence across 11 categories.

Other winners include: HSBC, which was recognized as the best international corporate and investment bank in China; ICBC, which was recognized as China’s best corporate and investment bank for debt capital markets; and China Merchants Bank, which was recognized as China’s best corporate and investment bank for financial institutions.

Two banks picked up multiple awards across different categories.

The first, Bank of China, was recognized as best overall corporate and investment bank; best cross-border corporate and investment bank for debt capital markets; and best corporate and investment bank for state-owned enterprises.

The second, China International Capital Corp, was recognized as best cross-border corporate and investment bank for equity capital markets; best cross-border corporate and investment bank for merger and acquisitions; and best domestic corporate and investment bank for mergers and acquisitions.

Competition is so intense in China’s investment banking sector that it has spilled over to Hong Kong, China’s primary offshore financial hub.


“Chinese investment banks have expanded rapidly into Hong Kong in the past decade,” notes Andrew Collier, who from 2009 to 2011 was the New York-based president of Bank of China International in the US.

“This has continued to drive down fees quite sharply, forcing many western banks to look at asset management as a means to regularize revenue,” he adds.

Chinese banks entered Hong Kong in earnest only after 2008, says Paul Schulte, the Hong Kong-based chief executive of independent equity analysis firm Schulte Research International, adding that they have driven Hong Kong commissions – which were 25 basis points – down to the mid-teens.

“The same goes for investment banking fees,” Schulte says, adding that before the Chinese firms came into Hong Kong “it was a cosy cartel” where fees were 5% on investment banking deals. 

It’s not that difficult to go to Wall Street and hire a team of experienced foreign bankers, but the key is you acquire your own experience operating cross borders yourself and integrate the corporate culture - Lao Zhiming, Huatai United

Chinese investment banks operated in a highly competitive environment on the mainland, notes Schulte, where the largest broker dealer – Citic Securities – never had more than single-digit market share and where 120 investment banks operated.

“Now, you are lucky to get 1% on investment banking deals in Hong Kong,” says Schulte, who was the chief Asia strategist for Lehman Brothers and Nomura Securities in the 1990s and 2000s.

China’s economic reforms began in the 1980s, but did not really take root until the early 1990s when the central government in Beijing allowed the formation of the Shenzhen and Shanghai stock exchanges.

In the last 25 years, China’s stock markets have grown rapidly to become the second-largest capital markets after the US. At the end of May, the combined market capitalization of the Shanghai and Shenzhen stock markets was roughly $7.4 trillion. But adding in the Hong Kong exchange with its $4 trillion market capitalization, China’s three exchanges combined form an $11-trillion market – far bigger than their counterparts in Japan or the UK, but still only a third of the size of the market in the US.


Competition is clearly the name of the game. Led by chairman and president Zhou Yi, Huatai is an example of the kind of aggressive new player coming out of China. Its bankers are proud of the fact that they can beat China’s top brokerage houses in winning deals. They point to the fact that the Nanjing-based investment bank was able to beat much bigger rivals such as Citic Securities, China’s top brokerage house, in several deals. And they are particularly proud of successes such as winning the right to advise several Chinese technology companies to delist from the US markets and to relist with much higher valuations back in China.

Among the first such wins was the delisting in 2013 and subsequent privatization of Chinese online advertising agency Focus Media Holding from the Nasdaq, a deal worth $3.8 billion. With Huatai United’s guidance, Focus Media was able to relist on the Shenzhen exchange in 2015; it now has a market value of $21.8 billion.

“Our success demonstrates that our team in China can operate cross borders,” says Lao Zhiming, Huatai United’s head of M&A in China. “It’s not that difficult to go to Wall Street and hire a team of experienced foreign bankers, but the key is you acquire your own experience operating cross borders yourself and integrate the corporate culture.” 

We don’t have a strong financial backer,” says Liao, “so we must be very strong in terms of our services and abilities. We must innovate - Liao Jun, Huatai United

Another success for Huatai was advising Nasdaq-listed Chinese internet security firm Qihoo 360 Technology to delist and privatize in a $9.3 billion deal in 2016, and to relist in Shanghai in February this year at a substantially higher market value of $62 billion.

The share price has since fallen, and as of late August, the company was valued at about $23 billion, still above the level achieved in the US. That particular transaction marks the largest overseas delisting by a Chinese company so far.

“We won the deal because we have a strong market reputation as a firm that understands the needs of private enterprises,” says Beijing-based Liao Jun, co-head of cross border M&A at Huatai United.

Whereas Citic Securities, a member of the Citic Group, is directly owned by the central government in Beijing, Huatai’s shareholders are a number of companies linked to private investors and to the Jiangsu provincial government, chief among them the Jiangsu State-Owned Assets Supervision and Administration Commission.

“We don’t have a strong financial backer,” says Liao, “so we must be very strong in terms of our services and abilities. We must innovate.”

Despite 30 years of financial market reforms, China remains predominantly a government-led market economy, which means that financial institutions that are owned by the central government and that therefore have close ties to Beijing will continue to enjoy an edge for years to come.

Bank of China

Bank of China, the nation’s fourth-largest banks by assets, is one of those institutions that has found success by leveraging its close ties to policymakers in the capital. BOC, for instance, ranked first in the league tables for loan bookrunners among all Chinese banks and second for debt capital market bookrunners for the period from June 2017 to May 2018, according Dealogic.

Led by chairman and president Chen Siqing, the bank helped its clients – the majority of them state-owned conglomerates – to raise $54.4 billion in financing through bond issuances and $51 billion through loans in the last year.

BOC bankers point out, for instance, that they are issuing partners and advisers to the Beijing state-owned capital management centre, which operates under the State Asset Supervision and Administration Commission. Sasac controls all large central government-owned assets, including controlling stakes in the main state-owned enterprises, and the Beijing centre helps the commission manage the assets of Beijing-based SOEs.

Bankers also point out that they are lead underwriters for various bonds sold to global investors recently by Central Huijin Investment, the Beijing-based state-owned asset manager that controls majority stakes in the nation’s largest financial institutions, including Industrial and Commercial Bank of China and Bank of China itself.

In April, for instance, Bank of China successfully helped Central Huijin raise $2.4 billion through the sale of third and fourth interim notes for 2018 to foreign investors via Bond Connect, that bond trading link between mainland China and Hong Kong that opened last year. The sales marked the first global offering by Central Huijin via Bond Connect. The two-year notes offered a coupon of 4.5%, while the three-year notes offered a coupon of 4.58%.

Central Huijin, which enjoys a domestic triple-A rating from Chinese agency China Chengxin, issued rated notes for the first time only last November in China’s domestic interbank bond market. Before that, Central Huijin issued only so-called government-supported agency bonds, which have a zero risk-weighting from the central bank and are exempt from credit ratings.

Being big and close to policymakers in Beijing certainly has paid off well for the Bank of China.

But even so, the rise of the entrepreneurial brokerage houses such as Huatai United Securities shows that China’s capital markets are maturing and that there are different kinds of players vying for leadership positions.

Lively competition and diversity are good catalysts in the marketplace and are a sign that China’s corporate and investment banking sector may enjoy healthy growth for years to come.

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