(The author is a Reuters Breakingviews columnist. The
opinions expressed are her own)
By Wei Gu
HONG KONG, Sept 18 (Reuters Breakingviews) - China’s most
venerable securities firm may need a new leader. China
International Capital Corp’s success was largely built on the
connections of chief executive Levin Zhu, the son of China’s
former premier Zhu Rongji. But market shifts are pressuring
CICC’s earnings and market share. And its influence will be
further diluted when China’s new crop of political leaders is
Political cycles often trigger changes at China’s top
state-owned firms, as officials want to put friends and family
in those powerful positions. CICC’s foreign ownership, as well
as Zhu’s strong personality and family backing, has sheltered
him from those personnel changes.
But CICC is under pressure. Revenue last year was down 40
percent, while earnings tumbled 85 percent to just $22 million.
The smaller bonus pool has to be shared by a larger number of
people, too. Headcount has tripled in the past five years to
more than 2,000.
Dismal performance partly reflects the malaise in the
industry. But it also underscores CICC’s relative decline.
China’s first investment bank used to have a near-monopoly on
privatising large state-owned companies: the fact that many
executives used to report to Zhu’s father clearly helped. But
now those deals are drying up, and competition has grown. In
domestic equity offerings, CICC has fallen from top spot in 2007
to fourth place this year. Its market share shrunk from 25
percent to just 6 percent, according to Thomson Reuters.
A former Morgan Stanley joint venture, CICC now has backing
from China’s state-owned investment company and buyout firms
Kohlberg Kravis Roberts and TPG Capital. Yet its private status
puts it at a disadvantage when rivals are using their balance
sheets to secure business. Market reforms will lead to new
opportunities such as margin trading, though listed rivals such
as Citic Securities and Haitong Securities, which have more
capital and broader networks, are likely to reap greater
benefits. CICC's practice of giving shadow equity to employees
means a listing on the domestic exchange still looks distant.
CICC could yet navigate China’s leadership change. Yet Zhu’s
forceful, hands-on management style looks increasingly out of
place. Just as his father’s influence is weakened by political
transition, CICC may also be due a change of leadership.
SIGN UP FOR BREAKINGVIEWS EMAIL ALERTS:
- China International Capital Corp. was established in 1995
as a joint venture between China Construction Bank and Morgan
- Its current investors include Central Huijin, a
state-owned investment company, the government of Singapore
Investment Corp., and U.S. private equity funds TPG Capital and
Kohlberg Kravis Roberts.
- CICC’s 2011 revenue was $518 million, down 40 percent from
2010. Its 2011 net profit tumbled 85 percent to $22 million.
Big could do better [ID:nL5E7K20WK]
- For previous columns by the author, Reuters customers can
click on [GU/]
(Editing by Peter Thal Larsen and Katrina Hamlin)
Keywords: BREAKINGVIEWS CHINA CICC
(C) Reuters 2012. All rights reserved. Republication or redistribution of
Reuters content, including by caching, framing, or similar means, is
expressly prohibited without the prior written consent of Reuters. Reuters
and the Reuters sphere logo are registered trademarks and trademarks of
the Reuters group of companies around the world.