Citigroup Edges Closer to Exiting Its Chinese Securities Venture
American financial giant Citigroup Inc. is edging closer to an exit for its investment in a Chinese securities joint venture, an important step in its plan to set up a brokerage it controls, as China further opens its financial sector to foreign companies.
Citigroup’s move comes after the China Securities Regulatory Commission (CSRC) raised the ceiling on foreign ownership of domestic securities firms to 51% from the previous 49% in April 2018, and Premier Li Keqiang’s July announcement that the cap would be abolished a year ahead of schedule in 2020.
The Shanghai branch of the CSRC in principle has no objection to Citigroup’s exit, according to an Orient Securities Co. Ltd. filing with the Hong Kong Stock Exchange on Tuesday, which cited a letter the Chinese brokerage received from the watchdog. Orient Securities will acquire the 33.33% equity interest held by Citigroup subsidiary Citigroup Global Markets Asia Ltd. (Citigroup Asia) in Citi Orient Securities Co. Ltd., a joint venture set up by the two, the filing said.
Orient Securities will wholly own the venture when the deal is completed. According to a transfer agreement signed in May, Orient Securities is set to acquire Citigroup Asia’s stake for 475.6 million yuan ($67.4 million).
Orient Securities first agreed to the acquisition in January, and the two firms finalized the equity transfer deal in May, according to previous filings. Orient Securities and Citi Orient now need go through equity transfer and foreign exchange procedures, as well as business registration, the Tuesday filing says.
Headquartered in Shanghai, Citi Orient was set up in 2012 with registered capital of 800 million yuan by Orient Securities and Citigroup Asia, holding 66.67% and 33.33% of equity interests respectively. In October, Citi Orient’s net profit more than doubled year-on-year to 12.6 million yuan, and its revenue grew over a quarter year-on-year to 66.8 million yuan, according to a November exchange filing.
Citigroup Asia had considered raising its stake to 51% but negotiations were unsuccessful, sources close to the latest deal told Caixin. That led it to weigh other options, including setting up a foreign-controlled brokerage on the Chinese mainland.
An analyst from a Beijing brokerage told Caixin that Chinese financial joint venture shareholders will not easily give up control if there’s no special interest arrangement in place, and regulatory approval also takes time. “Foreign institutions must first think of how to get 51% equity (in a venture), and then consider obtaining more equity from smaller shareholders to eventually hold 100% of equity,” said the analyst. “However, each step they take will face various problems and obstacles from regulators, other shareholders, and their parent companies.”
Citigroup isn’t the only foreign financial institution interested in taking majority control of its China business. Financial titans UBS Group AG, JPMorgan Chase & Co. and Nomura Holdings Inc. all have majority-owned brokerage joint ventures on the mainland.
Nomura’s new joint venture, Nomura Orient International Securities, said last month that it had obtained the first securities business license issued to a foreign-controlled securities joint venture on the mainland. The license allows it to operate four businesses, including brokerage, investment consulting, proprietary trading, and asset management.
Contact reporter Timmy Shen (firstname.lastname@example.org, Twitter: @timmyhmshen)
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