China's CICC expects M&A deals jump on state sector reforms

[BEIJING] China International Capital Corporation (CICC), the country's top domestic investment bank, aims to participate in as much as US$60 billion in M&A deals this year, driven by the government's plan to revamp its state-owned sector, a top executive said.

"CICC has a long-term relationship with big traditional state-owned enterprises (SOEs), since we have handled (many of) their capital market listings," Wang Zilong, head of mergers and acquisition business, told Reuters in an interview last week.

"The government also trusts CICC's capability to oversee important industrial restructuring of its big state firms," added Mr Wang, who manages a team of 30 bankers.

The Beijing-based bank's 25 domestic M&A deals last year had a total value of US$52 billion, accounting for 15 per cent of the US$347 billion market, Thomson Reuters data shows. Thomson Reuters data for CICC's offshore deals was not immediately available.

For 2015, with total deal volume expected to grow more than 15 per cent to US$400 billion, CICC may be involved in as many as 50 domestic and offshore deals, according to Thomson Reuters calculations.

CICC was established in 1995 as a joint venture between China Construction Bank Corp and Morgan Stanley, though the US investment bank sold its 34.3 per cent in 2010 to KKR & Co, TPG Capital Management, Singapore sovereign wealth fund GIC and the Great Eastern Life Assurance Co Ltd.

In the 16 months since China's President Xi Jinping called for measures to diversify ownership and improve management at the country's state firms, M&A transactions continue to increase, generating significant business for leading banks.

Over the last three years, CICC has participated in total transactions of more than US$86 billion in China's domestic M&A market, according to Thomson Reuters data. Only CITIC Securities Co Ltd has completed more deals in dollar value terms.

CICC statistics show it participated in 37 China-related M&A deals in 2014. Its two biggest deals last year were driven by state-dictated reforms, Mr Wang said.

These were the merger of the country's top trainmakers China CNR Corp and CSR Corp, and a precedent-setting US$17.5 billion stake sale of the retail unit of energy giant China Petroleum & Chemical Corp, or Sinopec.

The government is still mulling its SOE reform policies, which are expected to lead to greater consolidation of state industry, while allowing the participation of more non-state and private investment.

The China Banking Regulatory Commission also said this month it will soon release new policies to improve commercial lending to those firms engaged in domestic and overseas mergers, in the"new normal" for China's economy, according to an online statement by the banking regulator.

Mr Wang declined to comment on CICC's plan to appoint a new chief executive officer or sell shares in Hong Kong this year.

The bank's former CEO Levin Zhu resigned in October.

REUTERS