CITIC Securities Solidifies Global Push 中信证券巩固全球化战略

China’s biggest brokerage CITIC Securities (HKEx: 6030; Shanghai: 600030) could be a company to watch over the next 2-3 years as it attempts to become the country’s first truly global player using its newly acquired CLSA unit as a stepping stone. If I were making bets, I would say the company has the resources it needs to become one of the top second-tier global players in the next 4 or 5 years, competing successfully with the likes of names like Japan’s Nomura and Britain’s Barclays Capital. If it can do that, I would even give the company a chance of eventually entering the echelons of a global elite that includes names like Morgan Stanley (NYSE: MS) and Goldman Sachs (NYSE: GS), though that will take at least a decade or possibly longer.

Let’s take a break from the forecasting for a moment and look at the latest news, which has CITIC Securities saying it has exercised a previously announced option to buy the remaining 80 percent of CLSA securities it doesn’t already own from France’s Credit Agricole (Paris: ACA) for about $900 million. (company announcement; English article) CITIC Securities first announced the plan back in the spring, at which time it purchased an initial 20 percent of CLSA for $310 million with the option to buy the rest later. (previous post)

The total $1.2 billion price tag makes this one of the largest purchases of a global financial services firm by a Chinese company, and probably the largest purchase of an international brokerage. The fact that CITIC Securities exercised its option to buy the rest of CLSA isn’t really a surprise, as the company previously indicated it would probably do so barring any major surprises.

So let’s take a look at why this purchase looks like a good one for CITIC Securities, and could soon propel it into the global big leagues. Perhaps most importantly, CITIC enjoys strong links in China and is well respected as a quasi-private organization with good government ties. That could provide a strong attraction for global investors and investment banking customers looking for exposure to the Chinese market.

CITIC Securities is already China’s largest brokerage, and earlier this year made headlines when it became the one of the country’s first companies to become a renminbi qualified foreign institutional investor (RQFII), a new program that allows financial services firms to raise Chinese yuan outside the country for re-investment in China stocks and other financial products. (previous post)

CITIC Securities also has another important advantage over many global brokerages: Time. Right now the global brokerage and financial services industries are going through a prolonged downturn, which was one of the reasons Credit Agricole decided to sell CLSA. With the ownership transfer now complete, CITIC Securities will probably have at least a 1-2 year window to integrate CLSA with its own corporate structure, positioning the company to take advantage of an improving financial services market when it finally comes in then next few years.

Last but equally important, CITIC companies in general have a strong record of execution in their plans, which will be key if this campaign is to succeed. If everything goes smoothly, look for the CLSA and CITIC Securities names to start appearing as the brokerage for major clients and on major deals in the next 2-3 years, as the company starts down the road to becoming a serious contender in the global brokerage and investment banking businesses.

Bottom line: CITIC Securities completion of a takeover of CLSA marks its first major global step, which could see it emerge as one of the world’s top second-tier players in the next 5 years.

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