People
&Markets
Long wait nears end for HSBC JV
Chinese securities venture on track for December launch
It has been several years in the making,
but the wait for HSBC’s securities joint
venture is almost over.
HSBC Qianhai Securities is due to
open its doors next month in Shenzhen’s
Qianhai district, becoming the first Sino-
foreign JV in which the foreign bank has
a majority stake.
The launch has been overshadowed
with the announcement earlier this
month that Beijing will lift foreign
ownership restrictions in its financial
sector, including for securities JVs.
But while global rivals begin their
negotiations with regulators and their
JV partners, HSBC is hoping that its first-
mover advantage will justify the long
wait.
“There were discussions about a joint
venture dating back to 1997 or 1998,
but none of the opportunities met our
criteria” said Irene Ho, CEO of HSBC
Qianhai.
“Having majority control is important
to us from a risk and control perspective.
It also helps drive collaboration between
the parent bank and the JV.”
Ho, who started with HSBC in its debt-
origination team in 1997, rejoined in
2014 to spearhead the JV after a five-year
stint with PingAn Securities.
HSBC was the first foreign bank to
apply for a JV, taking advantage of
changes to the Common Economic
Partnership Arrangement between China,
Hong Kong and Macau.
The changes allowed Hong Kong-funded
securities firms to set up JVs in Shanghai,
Guangdong province and Shenzhen, in
which the foreign partners hold 51%
stakes.
HSBC filed its application in November
2015, but had to wait until June this year
to win approval from the China Securities
Regulatory Commission. HSBC has
completed an on-site inspection with the
CSRC and is awaiting the final business
permits before launching operations.
Since HSBC submitted its application
for the JV, two other foreign-backed
JVs won CSRC approval under CEPA,
according to research from consulting
firm Quinlan & Associates.
These were Huajing Securities, a JV
between China Renaissance and twoother mainland investors, and Shengang
Securities, which is owned by 14
investors.
Market observers have pointed to a mix
of stock market turbulence and changes
at CSRC as reasons for the hold-up.SINO-FOREIGN RELATIONS
For all the excitement around China’s
securities market, Sino-foreign JVs have, so
far, failed to live up to expectations.
Last year’s top performer among
foreign JVs was Citi Orient Securities,
which posted a net profit of Rmb258.5m,
still a fraction of the Rmb10.37bn
earnings of market leader Citic Securities.
Several banks, including, most recently,
JP Morgan, have walked away from their
JVs reportedly in frustration over the
lack of control, as well as disappointing
earnings.
HSBC is bullish about the prospects
of the JV, not just because HSBC holds a
majority stake, but because of its partner.
Unlike other banks, which have tied
up with established players, Qianhai
Financial Holdings is not a securities firm,
but rather the investment arm of the
Qianhai administration bureau.
The Shenzhen government set up the
company in 2012 and it has grown rapidly
since. It debuted in the capital markets in
2015 with a Rmb1bn (US$151m) Dim Sum
bond, with HSBC as underwriter.
“To us, having a partner that isn’t a
securities brokerage in its own right is
a positive,” said Gordon French, head
of global banking and markets for Asia
Pacific at HSBC.
“It allows us to bring our standards
to the firm rather than taking an entity
that is already operational and trying to
convince them to accept our input.”
Whereas the Chinese partners hold the
key licences for most Sino-foreign JVs,
HSBC Qianhai will hold all of them itself,
granting the parent bank a bigger say in
affairs.
So far, HSBC Qianhai has applied for
three licences: underwriting, brokerage
and investment advisory, which covers
research.
“These are the golden triangle because
you can’t do without them,” said Ho. “If
you do primary business, you need to dosecondary business as well and research is
the third leg.”
She points out that HSBC will likely
apply for other licences soon.PEARL RIVER DELTA
Starting a JV from scratch offers HSBC
greater control of the business, and may
avoid some of the headaches that have
derailed earlier partnerships, but it comes
at the expense of an established onshore
network.
That means it will take longer to build
up the headcount to challenge for market
share against local securities houses like
Citic Securities and Guotai Junan Securities
with their sprawling retail brokerage arms.
For one thing, HSBC Qianhai will have
to hire a lot more staff. Ho said that HSBC
has transferred a number of staff from
other offices, but will be hiring externally
for most positions.
Ho, however, is unperturbed.
“If you look at the most recent HSBC
annual report, commercial banking
has 1.7 million customers globally and
global banking has 4,100,” she said. “I
don’t think we need to go far to look
for existing clients. We will work with
HSBC’s bankers to strengthen our client
relationships and provide a new suite of
products to them.”
The JV forms a key part of HSBC’s
growth strategy, which calls for
increasing revenue from the fast-growing
Pearl River Delta region.
HSBC chief executive Stuart Gulliver
has said it will open up significant
opportunities, especially in debt capital
markets in China for renminbi issues for
corporates.
“This is really about taking what we’ve
done elsewhere in Asia and building on
it,” said French. “HSBC’s footprint in the
region is unrivalled, so it will be a case of
building on that success onshore.”
The recent announcement that China
will lift ownership restrictions on JVs
raises the prospect that foreign partners
may soon be able to hold a larger
majority stake, although this is not
HSBC’s immediate focus.
“We like our partner,” said Ho. “It is a
force to be reckoned with in Shenzhen.”
THOMAS BLOTT12 International Financing Review Asia November 25 2017TOP STORY STRATEGY1019_05 People and Markets.indd 12 24/11/2017 22:03: