Citic Securities, China’s biggest listed securities brokerage, is actively searching for investors, including foreign financial institutions, to buy part of its stake in China Asset Management Co, the country’s largest fund manager by assets, according to people familiar with the matter.
Citic has owned 100 per cent of China AMC since 2007, despite regulations that forbid single shareholders in fund management companies from owning more than 49 per cent.
Citic pledged last January to comply with the ownership regulations within six months but is yet to divest any of its stake, drawing the ire of China’s securities regulators.
The China Securities Regulatory Commission has suspended all approvals for China AMC to launch new products since January 1, and notified the company last week that it will take further regulatory action if Citic does not comply with the rules by April 1.
Citic is “actively negotiating” with potential buyers and with the regulator and is likely to “find a solution to the shareholding problem soon”, according to one person close to the situation.
People familiar with the matter said Citic would prefer to bring in an investor from outside the country because the 49 per cent ownership cap does not apply to Chinese investors if the fund management company has a foreign shareholder.
Chinese companies are allowed to hold up to 75 per cent in joint venture fund managers if foreign investors hold the remaining 25 per cent, according to Jiang Saichun, chief analyst at Desheng fund research centre.
“In theory, purchasing an investment in China’s largest fund manager would be of interest to a number of parties but in a world where not many people have spare cash I suspect it might be rather difficult to find a willing foreign buyer at the moment,” said one adviser to large global financial institutions investing in China.
Chinese media reports on Monday suggested that Morgan Stanley and Chinese investment bank CICC, in which Morgan Stanley holds a 34 per cent stake, were both potential buyers for a stake in China AMC.
However, a CICC spokesperson told the Financial Times that CICC had nothing to do with any possible stake purchase in China AMC.
With Rmb266bn ($39bn) under management at the end of December, China AMC controls about 10 per cent of the China fund management market and provided 14.5 per cent of Citic’s Rmb15.2bn revenue in the first three quarters of last year.
A 25 per cent stake in China AMC would be worth approximately $500m, according to Z-Ben Advisors, a Shanghai-based consulting group.
“China AMC is probably the best property in the Chinese asset management world, which is why Citic has tried to hang on as long as it could,” said Peter Alexander, Z-Ben’s principal.
He said the Chinese government could be hesitant to allow a foreign investor to take a stake in the country’s leading fund management company and Citic may eventually be forced to sell 51 per cent of China AMC to domestic investors.
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