In an effort to explore the thriving economy and a booming
capital market in China,
Citigroup Inc.
(
C
) commenced an investment banking joint venture (JV) with
Shanghai-based Orient Securities Co.
The JV, Citi Orient Securities Co., will engage in investment
banking activities including equity and debt securities
underwriting in mainland China. This partnership was announced in
June last year and got the nod from the China Securities Regulatory
Commission in early January.
The JV has a registered capital of 800 million yuan ($126
million). Citi holds a 33.3% stake in the JV, while Orient
Securities has a 66.7% stake. This is the maximum permissible
holding for a foreign entity according to Chinese law. Subject to a
relaxation of this upward ceiling in China and regulatory approvals
from the competent authorities, Citi will likely increase its stake
in this JV.
According to a
Wall Street Journal
report, underwriting pacts of nearly 50 Class A-share initial
public offerings have already been secured by the JV. Also, it
would provide advisory services to merger and acquisition
transactions in certain sectors such as automobile, energy and
entertainment.
To tap opportunities in China, U.S. and U.K., banks have already
forayed and made JVs in this territory. This includes some of the
biggest banks --
JPMorgan Chase & Co.
(
JPM
),
Goldman Sachs Group Inc.
(
GS
),
UBS AG
(
UBS
) and
Deutsche Bank AG
(
DB
) -- who have set up similar JVs with securities firms in
China.
Our Take
The JV in China is a strategic fit for Citi as the company is
aiming at augmenting its business in international markets. The
company has an encouraging overseas presence and is making every
effort to expand and tap opportunities in the emerging markets.
Going forward, we believe that such strategic partnerships will
enhance Citi's global network and boost its revenue base by
leveraging on fast-growing markets, thereby increasing its market
share internationally.
Citi currently retains its Zacks #3 Rank, which translates into
a short-term Hold rating.
CITIGROUP INC (C): Free Stock Analysis Report
DEUTSCHE BK AG (DB): Free Stock Analysis Report
GOLDMAN SACHS (GS): Free Stock Analysis Report
JPMORGAN CHASE (JPM): Free Stock Analysis
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UBS AG (UBS): Free Stock Analysis Report
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