CITIC Securities Juggles Its Golden Eggs

Price Dilemma
 
Meanwhile, shareholder control has been a key regulatory issue affecting CITIC Securities' plan to sell fund subsidiary ChinaAMC.

Since 2004, fund management firms have operated under stakeholder rules similar to those more recently assigned to brokers. The rules were written by the Administration of Securities Investment Fund Management Companies.

CSRC later clarified requirements on share percentages by declaring "with the exception of the Chinese side of Sino-foreign joint ventures, the largest shareholder for any fund management company may not own more than a 49 percent stake." As a consequence, CITIC Securities had to break up its 100 percent stake in ChinaAMC.

Since then, CITIC Securities has been busy courting domestic and overseas investors. And it was more inclined to make deals with foreign investors.

"A foreign investor entry would let CITIC bypass the restriction of owning more than 49 percent of a fund company," a source said. "Thus, CITIC Securities could sell fewer shares and ensure its majority control over the company."

Yet a source close to regulatory authorities said the sale of a ChinaAMC stake should not be decided by CITIC Securities alone. Indeed, regulators have been hesitant about allowing foreign investors into the deal.

"The CSRC's position is clear: The stake must be sold to a domestic investor," said the source.

And this regulatory edict has put pressure on price-setters.

"After it was determined that the ChinaAMC stake would have to be sold to a domestic investor, issues related to the selling price became more prominent," said a ChinaAMC source.

"The price cannot be too high, because if it is the new shareholder will inevitably demand even higher returns, putting intense pressure on management."

1 yuan = 14 U.S. cents

Full Article in Chinese: http://magazine.caing.com/2010-01-24/100110572.html