CITIC Securities seals deal with CLSA

EYEING THE NUMBERS: Staff members at CLSA Asia-Pacific Markets' Hong Kong headquarters on July 23, 2012. [Photo/CFP]

The marriage between Chinese investment bank CITIC Securities and CLSA Asia-Pacific Markets, a Hong Kong-based equity broker and financial service provider, has been under the spotlight since it took shape in 2010.

Going through all the twists and turns in the past three years, CITIC Securities, which has already completed the purchase of a 19.9-percent stake in CLSA from French retail banking giant Crédit Agricole S.A. for $310.3 million, announced on June 28 that it will postpone its $941.7-million takeover of CLSA's remaining 80.1-percent stake to July 31.

CITIC Securities explained that the parties concerned were going all out to promote the takeover's completion. Once the takeover is wrapped up in late July, CITIC Securities will become the first Chinese-funded financial institution to acquire a widely known overseas counterpart.

In the pipeline

CITIC Securities and Crédit Agricole, CLSA's controlling stakeholder, managed convergence on cooperation in 2010. At that time, the two sides agreed to set up a 50-50 joint venture headquartered in Hong Kong without cash funding. More specifically, CITIC Securities would inject its Hong Kong-based subsidiary CITIC Securities International into the company, while Crédit Agricole would inject CLSA.

Just a few months later, things had changed. In the second cooperation agreement, CITIC Securities decided to have its wholly owned subsidiary, CITIC Securities International, pay a total of $374 million to acquire a 19.9-percent stake in both CLSA and CA Cheuvreux, another subsidiary of Crédit Agricole.

Then CITIC Securities and Crédit Agricole had entered a cooperative relationship, but the plan was not put into practice.

Unexpectedly, the original scheme fell through. On March 29, 2012, CITIC Securities announced it would no longer acquire the equity in CA Cheuvreux, but it would continue to invest in a 19.9-percent stake in CLSA and would enter exclusive negotiations with CLSA as quickly as possible to acquire the remaining 80.1-percent stake. The total transaction value was $1.25 billion.

One question surrounding the takeover is: Why would CITIC Securities pay such a high price for a securities trader that is losing money?

By Dec 31, 2011, CLSA's total assets and net assets had reached $4.4 billion and $561 million, respectively. It gained $61 million in net profits in 2010, but lost $10 million in 2011.

Confronting voices of doubt, Ge Xiaobo, Chief Financial Officer of CITIC Securities, insisted that CLSA was worth the price, and expected the takeover could complement CITIC in its overseas business.

"CITIC's overseas business has never achieved the goal of contributing 20 percent to the total operation revenue. The acquisition of CLSA may help CITIC Securities get closer to the goal," said Ge. In 2011, CLSA registered revenue of $739 billion, which was equivalent to 15 percent of that of CITIC Securities.