Ten Years Of Reform: Glory And Challenge Behind The Scenes Of CICC'S IPO Approval

On a social platform, "how to look at CICC's announcement of (A-share) listing" has aroused the interest of many old-fashioned financiers and aroused the market's recall of a period of prosperity brought about by CICC's special status as "the first joint venture securities company in China".

It seems that it took only four months for CICC to return to a shares from the formal submission of IPO application to the CSRC. However, it has been 13 years for CICC to go public in the domestic capital market.

At 10:20 p.m. on September 17, 2020, the results of the 138th meeting of the 18th development and Examination Committee of the CSRC in 2020 came late.

As the last of the five enterprises to be tried on the same day, CICC won the approval of the IEC, but there was no accident.

According to the reporter of the 21st century economic report, the listing of CICC's A-share is of great significance to itself and to the entire domestic securities industry: it not only means that the last leading securities firm in China has successfully joined the A-share market, but also indicates that the pattern of the domestic securities industry may undergo a new round of rearrangement.

Can CICC regain the glory of "king of investment banking" again in the situation of powerful rivals in the industry?

With the reform and adjustment of the whole business structure mode of securities companies, how will CICC further optimize the business layout on the premise of inheriting the characteristic traditional business? In the traditional securities industry, how to make use of the grafting advantage with capital to continue to maintain the robustness through the industry cycle?

This kind of question is waiting for CICC, which is about to list a shares, to give an answer with action.

Up and down the altar: an extraordinary "start"

From the birth of "jade" in 1994, the "separation" with foreign shareholder Morgan Stanley in 2010, and the official listing of H shares in 2015 with the blessing of Tencent and Ali, CICC, once known as "the aristocrat of investment banking", has been carrying the times in the reform and changes of China's capital market in the past 30 years, and its fate has been ups and downs in lessons and experiences, conservatism and innovation.

"This is an important step forward and a new beginning for CICC."

Late in the night of September 17, after getting the news that CICC's A-share IPO had officially passed, the relevant person in charge of CICC immediately told reporters of the 21st century economic report.

Five years ago, the listing of Hong Kong shares coincided with the 20th anniversary of CICC.

At that time, the "halo" became increasingly dim. It was with the opportunity of H-share IPO that gradually changed the declining trend, and began to hatch and prepare for the layout of "revitalization" later.

Now, five years later, CICC's return to a is the 25th anniversary of its founding. From its early years in the industry, to its gradual extinction, and then to its rising again in recent years, CICC's A-share IPO carries more imagination of its future development.

The story goes back 10 years. 2010 is an important year for CICC to turn its development.

In this year, Morgan Stanley transferred all of its shares in CICC, formally ending the various fetters and games between CCB and DMC, the two major shareholders of CICC.

At this time, after 15 years of development, CICC, with the original purpose of "providing basic financial services for state-owned industries", undertook the "escort" business of most of China's state-owned enterprises at home and abroad.

The natural background advantages of shareholders and the introduction of a large number of high-end professionals were the two sharpest blades that helped CICC to become the king of investment banking.

Big Mo's departure not only makes CICC's ownership structure further adjust, but also makes its speculation about preparing for listing in the market.

"We have no listing plan for the time being" and "listing is not our first priority in the current arrangement". In the following ten years, journalists from 21st century economic news interviewed relevant senior executives of CICC for many times. Before 2015, at least, the answers were almost the same.

What is little known to the outside world is that, in fact, as early as 2007, CICC has set up an internal listing preparation group to conduct multiple investigations on various possibilities of listing.

However, due to the influence of various factors, such as the background of shareholders, financing demand, income composition and market policy environment, CICC's listing plan has been difficult to promote substantially for many years.

Before 2010, the most important customers of CICC were large-scale state-owned enterprises, which contributed huge profits to CICC.

It not only established CICC's leading position in the industry, but also solidified its strategic thinking of focusing on "high-rise" projects, which became an important reason for CICC to be squeezed out of the altar after 2010.

"On the one hand, with many large-scale central enterprises listed one after another, large projects for CICC are doing one pile less. In addition, when the gem was launched in 2009, CICC did not pay attention to these "small" projects and misjudged the prospects of the investment banking business in the whole market. " A veteran who once worked in CICC told the 21st century economic reporter that the wrong strategic positioning of CICC's investment banking business on the gem made it miss the development opportunity of at least five years later.

According to the public data, the gem was officially launched in the second half of 2009. In that year and 2010, CICC's net income from underwriting, sponsor, merger and reorganization and other financial consulting businesses exceeded 2 billion yuan, which still ranked first in the securities industry. Then, when the gem was officially active, CICC's investment banking business income fell to the fifth in 2011. Since then, CICC has never been able to win the investment banking business and has been maintaining the fifth level in the industry.

In sharp contrast to the desolation of CICC in those years, Ping An Securities, Guoxin Securities and other securities companies, which were originally unknown in those years, realized "overtaking on the curve" and raided by foreign forces, reshaping the ranking pattern of securities companies with the help of the reform opportunity of gem.

In the ten years after 2010, the leaders of CICC changed frequently. From Li Jiange, Jin Liqun and Ding Xuedong to Shen rujun, the four directors of the board shuttled around CICC like a lantern. During this period, Zhu Yunlai, Bi Mingjian, Huang Chaohui and others once held the position of CEO of CICC. Along with the appointment and removal of many important personnel, CICC, the former king of investment bank, also followed the guidance of "helmsman" to follow the wave or sink or float.

Motivation and challenge of listing

In the early years, CICC's attitude towards IPO of A-share has always been "indifferent". However, with the change of domestic industry trend and capital environment, especially after the listing of CICC's H-share in 2015, the plan of returning to a has always been on the desk of CICC's internal senior management.

After all, in the past few years, CICC has carried out a series of business reform and innovation relying on the policy dividend of consolidated statement supervision pilot project in order to return to its former peak. Especially in the investment and financing business, CICC's performance has greatly increased. The high leverage management strategy it has to adopt behind this has also brought risks to it.

Data show that CICC has further increased leverage ratio (excluding customer margin) by 7.39 times, ranking first in the industry.

Although this has made its roe continue to increase, on the other hand, it has also made its risk coverage, capital leverage ratio and net stable capital ratio reach 159.6%, 13.3% and 130.4% respectively, which is close to the warning standard set by the CSRC, and the demand for net capital replenishment is urgent.

For the management of CICC, how to further strengthen the capital platform of CICC through listing is not only from the consideration of supervision and market risk, but also from the competition between shareholders and the internal brothers of Huijin system.

"The integration of securities companies has been a major trend in the industry in recent years. The survival rule of" big fish eating small fish "is also common in the securities industry. If you want to avoid being swallowed up, you must make your own platform bigger and stronger and become an active" predator. " Huijin also belongs to another large-scale securities company senior personage once told the 21st century economic report reporter.

The controlling shareholder of CICC is Central Huijin Investment Co., Ltd. ("Central Huijin"). In addition to CICC, there are also Shenwan Hongyuan, China CITIC construction investment and China Galaxy.

In addition to CICC, the other three have already entered the A-share market, and in terms of scale and volume, CICC ranks low.

For example, by the end of 2019, the net assets of CICC were RMB 48.532 billion, ranking No.13 in the industry; the net assets of Shenwan Hongyuan and Yinhe securities companies, both Huijin system, were more than 70 billion yuan, and Everbright Securities was 500 million yuan higher than that of CICC.

In terms of net capital, by the end of last year, CICC's net capital was 28.702 billion yuan, while galaxy and Shenwan Hongyuan had reached 69.017 billion yuan and 56.148 billion yuan respectively. Even Everbright Securities was nearly 8 billion yuan more than CICC.

However, if CICC's A-share listing is successful, its asset scale will be significantly enhanced, and this pattern will change again.

According to the final issuance scale of CICC's A-shares, it plans to issue no more than 459 million A-shares.

According to this calculation, its initial fund-raising scale will reach about 10.5 billion yuan. This also means that after the IPO, CICC's net asset size will be close to 60 billion. In addition to narrowing the asset scale gap between CICC and Galaxy Securities and Shenwan Hongyuan, CICC will surpass the established head brokers such as China Securities, Everbright Securities and Orient Securities. From the perspective of net capital, if the additional capital is about 10 billion yuan, the highest level can be close to the level of Guoxin Securities.

Ten year Revolution: to die and live

If we go back to the past 10 years, many people in the financial industry will realize that this giant ship of securities companies has found a new way to break through after 2015.

This change is in the same line with the current IPO process.

After 2010, CICC's weak trend continued until 2015. Its H-share IPO in July of that year laid a solid foundation for CICC's future turnaround.

Although before 2015, many of its former rivals, such as CITIC Securities, GF Securities, Huatai Securities and even Galaxy Securities, which was once ridiculed by the industry as "big" but not "strong", were linked with the capital market by means of backdoor or IPO. With the help of capital leverage, under the escort of sufficient capital, it is no longer what it used to be.

But the listing of CICC at the moment, although late, is not too late.

According to the 21st century economic reporter's understanding, with the help of the powerful marginal effect brought about by IPO, in addition to solving the problems at the capital level, and with a more market-oriented and transparent internal control management mechanism, CICC has opened another way of counter attack after abandoning its former "aristocratic" status.

In November 2016, CICC acquired 100% equity of CICC securities; in September 2017, Tencent, as a strategic investor, subscribed for CICC's newly issued shares with a shareholding ratio of 4.95%; in June 2018, the company announced that Huijin, the largest shareholder, transferred 9.5% of its shares to Haer financial holdings. After a series of capital operations, CICC ushered in another comprehensive equity structure after bidding farewell to Damo in 2010 Optimization.

"The acquisition of CICC securities is a very important capital operation of CICC in recent years. Relying on this, CICC not only made up for its weaknesses, but also grafted huge retail resources in brokerage business and wealth consulting business, and reestablished its business focus. In addition, after the merger of CIC securities, CICC's performance has also made a great leap forward, helping it to advance directly Into the first echelon of securities companies, which laid a solid foundation for the IPO of its a shares. " The above-mentioned veteran who worked in CICC pointed out that.

According to a data obtained by the 21st century economic reporter, 2011 was the most difficult year for CICC in the past decade, and its net profit was only 26.04 million yuan, ranking 71st among 111 securities companies.

In 2012, although there was a significant improvement, it was basically at the end of the median among a number of securities companies.

According to the regulations of CSRC on the business and performance of securities companies in A-share IPO, CICC is obviously difficult to achieve before 2015.

However, from 2012 to 2017, without the halo of "investment banking aristocracy", CICC chose to converge and transform its development while CITIC Securities, Guangfa Securities, Huatai Securities and other first-line securities companies were contending for A-share market. Its net profit quietly increased from 308 million to 2.766 billion, with an annual growth rate of 55.1%, far higher than the 28.0% increase in the net profit of the securities industry in the same period Speed, its profit ranking from the industry's 50 or so into the top 30.

The net profit of China Securities Investment Group before and after the merger is the first in the industry.

Business sector reshaping

"After CICC acquired CICC securities in 2017, its business focus has been repositioned and adjusted. This reform also makes CICC's revenue grow significantly, but also has strong stability." On September 18, another insider from CICC told the 21st century economic reporter.

According to its point of view, "new" CICC is mainly based on two major focuses: one is asset light business mainly focusing on wealth management business and traditional investment bank sponsor merger and acquisition business; the other is its investment and financing business vigorously developed in recent years with its unique innovation gene and internationalization gene. In particular, wealth management business has become the strategic focus of CICC in recent years.

CICC's strategic focus on wealth management business has natural advantages and is also the key to its smooth transformation in recent years. After the wholly-owned acquisition of CICC securities, CICC renamed it "CICC wealth" and became its wealth management brand.

Wealth management business has the characteristics of light assets, high roe and anti cycle. It is of great significance for the sustainable development of the company and the maximization of shareholder value to increase the proportion of revenue and profit of this part of business. Secondly, after the merger of CICC, it grafts its huge customer resources of retail brokerage business, which provides a historical development opportunity for CICC's wealth management business.

In 2016, after missing the opportunity of gem, with the acceleration of a new round of IPO, CICC adjusted its strategy in a timely manner. Relying on good project accumulation in the early stage and reserves in the new economic field, as well as the investment banking business supplement brought by CIC securities merger and acquisition, CICC gradually recovered its ranking in its most traditional IPO projects, and began to have an underwriting scale in 2018 Back to the top.

"CICC's previous customers were mainly large state-owned enterprises and central enterprises. After the merger and acquisition of CIC securities, some small and medium-sized enterprise projects of the former CIC securities investment bank team were also brought to CICC. It can be seen that under the registration system, CICC's investment banking project composition is more diversified. " A person familiar with CICC analyzed to the reporter.

In 2019, the opening of the science and technology innovation board provides an excellent opportunity for CICC's investment banking business to continue to break through.

An interesting detail is that in July may 2019, the CSRC issued the first fine on the science and technology innovation board. In the process of recommending a company's listing on the science and technology innovation board, CICC changed the application documents of the issuer without the consent of the Shanghai Stock Exchange, and was shown a warning letter.

Wan Jiuqing, the main sponsor of the project, came from CICC securities and entered the investment banking department of CICC due to merger and acquisition.

According to statistics, by the middle of June 2020, on the first anniversary of the opening of the science and technology innovation board, CICC has won many firsts with 14 sponsor listed enterprises, 1.348 billion yuan recommendation income and 409.448 billion yuan of total project market value.

Since 2017, CICC's investment and financing business income has increased against the trend, and excellent investment business is the factor driving CICC's investment and financing business income growth against the market since 2017.

"The excellent performance of investment business comes from strong fixed income investment ability and competitive strength of derivatives business." A well-known securities analyst who has been tracking CICC's business for a long time said that CICC's investment and financing business mainly includes investment business and financing business. CICC has always maintained a cautious attitude towards financing business and its business scale is very small. The excellent performance of investment business mainly comes from its strong fixed income investment ability and derivatives business competitiveness. From the perspective of fixed assets allocation, the proportion of self financing companies is also higher than that of fixed assets allocation.

The merger of CICC, the reorientation of business structure, the return of investment banking business to the peak, and the continuous rejuvenation of the company's performance have also become the "bottom card" for CICC to return to A-share IPO.

From the cliff like decline after 2010 to 2020, when the journey of A-share listing officially begins, and with the success of A-share IPO, another new decade is coming. There are also new issues and new challenges in front of CICC.

Who will be the "first prize" of aircraft carrier class

The regulatory authorities hope to build an aircraft carrier level securities company in China.

For example, recently, there was a lot of rumors in the industry that CITIC Securities and CITIC construction investment would be merged into a super securities company, and the further integration of Huijin's subordinate securities companies was expected by the market.

If we want to maintain the independence and platform advantages in the coming securities industry integration, it is obvious that expanding the capital scale with the help of listing is conducive to enhancing CICC's discourse power in Huijin system.

"If Huijin system still has integration expectation, CICC will further improve its own volume and capital strength, and will have greater dominant power over potential integration." A close to the Huijin system of securities analysts said.

"Although Huijin has different status in the eyes of big shareholders, it is natural for them to have the same platform." Huijin is another large-scale securities company senior officials think.

At the issuance and examination meeting of CICC's return of A-shares, the IEC also directly asked the CICC to explain "whether the Central Huijin has any interest preference for the individual securities companies it invests in, whether it can not fully compete with other securities companies through the exercise of shareholders' rights, and whether it has established the prevention of interest conflicts between CICC and other securities companies Mechanism ".

The success of CICC's A-share IPO makes it stand on the same starting line in the capital market with new and old rivals such as CITIC Securities, China CITIC construction investment, Huatai Securities and Galaxy Securities.

With the opportunity of listing and the linkage of the reform of capital market, whether CICC can stir up the industry pattern again with its own power, and how to make its power to further expand and strengthen rapidly when the regulatory layout of super large securities companies becomes more and more obvious, which is also the biggest challenge that CICC will face next.

"CICC will continue to firmly develop the business layout determined by the new CICC after its A-share listing," said an insider of CICC.

According to CICC's IPO prospectus (draft declaration), after deducting the issuance expenses, all the funds raised in the A-share IPO will be used to increase the company's capital, supplement the company's working capital, and support the company's domestic and foreign business development.

At the same time, CICC will make use of the raised funds to further strengthen its investment in financial technology, internationalization and other strategic fields, and timely grasp the opportunities of strategic M & A. The company plans and manages the business in a unified way.

Although CICC has made some breakthroughs in its development and transformation in recent years, and is returning to its peak. In the past IPO review, there is no precedent that the listing application of securities companies has been rejected. However, on the spot of IPO issuance Committee on September 17, CICC was subjected to sharp interrogation by the development and Examination Commission, and its problems in lucky coffee, competition among peers and investment banks were also discussed Business changes in recent years and the integration of CIC securities on the four major aspects of the inquiry.

In particular, because of the financial fraud case of Ruixing coffee, the IEC questioned the quality control in the process of securities underwriting and financial consultant practice. It is required to fully explain the possibility of undertaking compensation liability in the subsequent litigation related events such as Ruixing coffee, the basis and sufficiency of judging that "the risk of undertaking compensation liability is small", whether it has a significant adverse impact on the company's investment banking business and sustainable operation, and whether there are other projects that are more likely to be investigated by the regulatory authorities or bear joint and several liability by the investor litigation.

Focus on specific investment banking business. The IEC said that CICC's investment banking business continued to rise significantly during the reporting period, and the proportion of investment banking business was significantly higher than that of comparable companies. Explain the reasons for the company's request for low price in the above circumstances.

In terms of acquisition and integration of CIC securities, although CIC securities has brought transformation opportunities for CICC's financial management business, it has not yet completed its integration with CICC securities since its acquisition in 2017.

The development and Audit Commission specifically asked CICC to explain whether the integration process of CIC securities conforms to the established integration plan, whether it has achieved the expected goal, the progress and effect of the current integration work, as well as the problems and difficulties it faces.

The listing of A-share IPO is the opportunity and beginning for CICC to return to its peak. Whether it can grasp this opportunity or not is full of expectation and imagination within CICC.

"It was a busy evening, but my colleagues were very happy." Late in the night of September 17, the relevant responsible person of CICC told the reporter of 21st century economic report.