Having Survived 30 Years, CITIC Now Thrives
(Beijing) – Financing your own bets in the high-stakes world of international finance can result in big paydays, significant losses, or both at different points in time – especially if you are a huge, state-owned conglomerate in China.
CITIC Group has seen it all. And now, after 30 years of highs and lows – including steep losses tied to structured investments just two years ago – the firm is reaping in rewards after posting its best financials ever.
At the end of 2009, total assets of the Group rose to 2.15 trillion yuan and annual net profits were about 19 billion yuan for the year, rocketing the CITIC Group into number 415 of the Global Fortune 500, the first time the Group has been included in the rankings.
Rightfully, Chairman Kong Dan and Vice Chairman-President Chang Zhenming are proud of the firm's accomplishments to date and are looking forward to a possible overseas stock market listing in the future.
In terms of total assets, the CITIC Group is topped only by China's five largest banks – Industrial and Commercial Bank of China, Agricultural Bank of China, Bank of China, China Construction Bank, and Bank of Communications – and is ranked number 12 among centrally administered corporations, which includes mega-companies such as China Mobile.
The CITIC Group is the only state group that has consistently pursued diversified investments since its founding in 1979 as China's first window to the world, welcoming foreign investment in the form of China International Trust and Investment Co., today's CITIC. CITIC was also the first Chinese corporation to issue bonds overseas, offering 10 billion yen in samurai bonds on the Japanese market in 1982.
Yet the group used an annual average of US$500 million to pay-down debt – a heavy burden – between 1982 and 1993. Few subsidiaries were generating profits back then, and cash flow was severely crimped.
In the early days, CITIC Bank International and CITIC Bank were the group's most important assets. But by 1997, CITIC Bank International was nearly bankrupt. And by 2002, CITIC Bank lacked the capital to cover about 27 billion yuan in bad assets and did not meet China Banking Regulatory Commission regulatory requirements.
As part of a restructuring, CITIC issued 23 billion yuan worth of bonds in two issuances in 2007 and offloaded some real estate, injecting the resulting capital into CITIC Bank. That was followed by a public listing for the bank, which eventually acquired CITIC Bank International.
The overhaul of CITIC Bank led to restructurings of other Group subsidiaries such as CITIC Heavy Industries and CITIC International Financial Holdings.
But another misfortune came when subsidiary CITIC Pacific posted huge losses tied to financial derivatives in October 2008 – just as Chang took the reins at CITIC Pacific and shortly after the Summer Olympics in Beijing closed successfully at a CITIC-financed jewel, the Bird's Nest Stadium.
Today, Kong and Chang are happy to discuss the ups and downs of their years at CITIC. They even shared a few laughs during an interview June 21 at the Capital Club in Beijing. "Your suit pants and jacket aren't matching, again," Kong told Chang. "I don't think I even own a complete suit," Chang jokingly replied.
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