IFR Asia – March 17, 2018

Banks eye

bigger stakes in

China JVs

Global banks are stepping up their pursuit of

controlling stakes in their China securities

joint ventures after regulators drafted

FORMALûRULESûTOûGRANTûFOREIGN

OWNEDûlRMSûAû

greater role in the mainland capital markets.

Several banks have told IFR they are

in talks with their JV partners to acquire

majority stakes and most agreed they

would eventually look to take full control.

“We’ve held talks with our partner for

a while and it is aware that we want to

increase our stake to a controlling one once

the regulations allow us to do so,” said one

source at a major global bank.

“Our aim is to move eventually towards

full ownership as we operate fully owned

subsidiaries in every other market where

we have a presence.”

“It’s very much the same pattern that we

saw in India about a decade ago.”

On March 9, the China Securities

Regulatory Commission issued a

consultation paper that brings the goal of

majority control within reach of foreign

banks, sparking the renewed interest.

4HEûGUIDELINESûSAYûFOREIGNûlNANCIALû

institutions will be allowed to control

securities JVs, without specifying a

maximum stake. They also say, without

providing further details, that securities JVs

will be able to apply for additional licences.

Meanwhile, individual investors will

be allowed to own up to 30% of listed

securities companies.

The draft rules follow a speech last

.OVEMBERûBYûVICEûlNANCEûMINISTERû

Zhu Guangyao, when he unexpectedly

announced that the limit on foreign

ownership in JVs involved in the futures,

securities and funds sectors would be raised

to 51%.

Zhu said full foreign ownership of local

lRMSûINVOLVEDûINûTHESEûMARKETSûWOULDûBEû

permitted after three years.

This was welcome news for foreign

banks, which have endured years of

frustration from having their ownership

capped at 49%, often leaving their JV

partners in control of key licences.

TINY MARKET SHARE

According to the most recent data from the

Securities Association of China, all seven

Sino-foreign securities JVs in operation

ATûTHEûTIMEûPOSTEDûPROlTSûFORûTHEûSECONDû

consecutive year in 2016.

The combined earnings, however, were

a paltry Rmb628m (US$99.4m). Citi Orient

Securities, the newest entrant, was the

TOPûPERFORMERûPOSTINGûAûNETûPROlTûOFû

Rmb258.47m.

Without majority control, banks have

struggled to gain much of a foothold,

while regulations preventing JVs from

engaging in businesses where their Chinese

shareholders already operate have hindered

opportunities for most to expand beyond

underwriting and advisory.

People

&Markets

UBS revamps capital markets team

Asian DCM head adds equity oversight as sanctions loom

UBS has merged its debt and equity

UNDERWRITINGûTEAMSûINû!SIAû0ACIlCûJUSTû

days after the bank said it was facing an 18-

month ban from sponsoring IPOs in Hong

Kong.

The Swiss bank named Gaetano Bassolino

head of the combined group, according to

an internal memo.

David Chin, head of corporate client

solutions for APAC, said in the memo that

combining the ECM and DCM businesses

would help UBS improve its coverage and

ALLOCATEûRESOURCESûMOREûmEXIBLY

Other banks, notably Citigroup and

Morgan Stanley, already have a similar

set-up in the region to better coordinate the

services they offer clients.

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responsibility for the Asian ECM franchise

to a debt markets specialist at a time when

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Asian equity underwriting.

Bassolino was previously head of debt

capital markets and client solutions for

APAC. He has been with UBS since 2000

and in Hong Kong since late 2015.

UBS revealed in its annual report on

March 9 that the Securities and Futures

Commission of Hong Kong had handed it a

(+Mû53M ûlNEûANDûANû

MONTHû

suspension of its licence to sponsor IPOs.

It has faced an SFC investigation

over its role as sponsor of certain Hong

Kong listings, including the 2009 IPO of

China Forestry, whose shares have been

suspended since 2011. UBS said it planned

to appeal against the decision.

Andrea Orcel, president of UBS’s

investment bank, and Chin told staff

after news of the sanctions that it was

“business as normal” and it could continue

sponsoring IPOs until its appeal was heard.

The bank also told staff that it expected

the appeal hearing to take place in the

FOURTHûQUARTERûWITHûAûlNALûDECISIONûDUEû

early next year.

The potential penalties come as Hong

Kong is enjoying a surge of interest in IPOs,

in part due to a revamp of its listing rules

to attract a wider range of issuers from the

technology sector.

Xiaomi Technology, the Chinese

smartphone and home appliance maker, is

considering a Hong Kong IPO, alongside a

domestic listing, while Lufax, the Chinese

wealth-management platform backed by

insurance giant Ping An is also looking to

list in the city.

UBS is working on the listings of Chinese

biotechs SHANGHAI HENLIUS BIOTECH and HUA

MEDICINE, as well as the sports business of

conglomerate DALIAN WANDA GROUP, among

others. Sponsor roles are typically not

CONlRMEDûUNTILûSHORTLYûBEFOREûTHEûlRSTû

lLING

MERGED LINES

Last year, UBS sponsored two Hong Kong

IPOs, for ZhongAn Online P&C Insurance

TOP STORY PEOPLE

David Chin, head of corporate

client solutions for APAC, said

in the memo that combining

the ECM and DCM businesses

would help UBS improve its

coverage and allocate resources

more flexibly.