Head of investment banking, DC Lee, talks about a year of phenomenal growth for Core-Pacific Yamaichi.
Can you tell us a little bit about the history of Core Pacific-Yamaichi?
The holding company was previously called Core Pacific Securities and came from Taiwan. In 1997 some foreign investment banks said they wanted to sell their Asia business, especially the Hong Kong part. We chose to buy Yamaichi's operation for many reasons. It was a financially strong operation in Hong Kong. The firm had a 26 year history in Hong Kong, and had very good client relationships. The acquisition price was $90 million, but $81 million of that was cash, so really we only paid $9 million.
Taiwanese President, Lee Teng-hui had a special relationship with Japan and gave us special permission as a Taiwan company to move $90 million to Hong Kong.
This gave us an entry point to the China market. In Taiwan we already have a strong market share, and Hong Kong is an international financial market. Yamaichi had done a lot of B share IPOs for China firms. I recommended we keep the Yamaichi name in spite of its bankruptcy, because people did not know Core Pacific in China well but they did know the Yamaichi name. It was a big force for branding.
China is the major focus for us. And with China entering the WTO, the government will allow JVs with local securities firms. We are already talking with several companies about this.
What is your strategy?
We hope to become a leading investment bank focusing on Greater China and the hi-tech industry. I used to work in the hi-tech industry myself in Taiwan, so it's an area I know well. In Taiwan we have around a 25% market share of the OTC market, which is mostly small cap, hi-tech companies. So we've had experience of small and medium-sized IT companies. We sponsored 13 companies for listing in 2001. We have done 10 GEM listings in 2001.
How many are those are China companies and how many are Hong Kong?
Seven are from China, one which is from Taiwan, and two are from Hong Kong. Most of these are hi-tech companies.
Our focus is on industrial software companies, biotech, wireless communications and new materials, channel, etc.
What are new materials?
It's a product that will replace something else. For example, it might be a new anti-pollution material. We have done one deal in the agricultural sector in this field, due to a pollution issue.
New materials can be unique products not just for China, but the world, and they can also change the competitive landscape.
We have a top down approach. We work out where the potential lies and then we choose the company which is the market leader or owns the core technology.
Where are these companies sourced from? Shenzhen? Hong Kong?
We come up with the strategy first, and then we have our marketing team of 30 going out to find good companies. With that many people we can cover the whole of China. The ones in Beijing normally handle North China, while Shanghai handles the middle and East, and Shenzhen the South.
Are these mainland Chinese?
The regional head of the group was recruited from Taiwan, but the rest are local people. They are mostly young keen MBAs. And there is a cost-benefit compared with Hong Kong. They are good people. They join in with the execution too.
How many China deals will you do in 2002?
In year 2002, we will have at least 15 deals from China.Maybe more. And they will be H share.
I like to use the expression, "One country, Two markets". Hong Kong is the place that many of these companies can list in first, then when they meet the requirements of the A share market they can do a secondary listing in China later.
And then we think Taiwanese companies will start to spin-off their China operations and list them on the A share market or in Hong Kong.
We cannot do A share underwriting before we form a TV securities firm, but we work with local securities firm and act as financial advisor.
Do you get a fee for this?
Yes. Normally we will secure the deal and help the company to select the underwriter.
How many financial advisor roles do you have?
Last year we have five such roles. A lot of companies want to list in China because it raises their profile in the market. We advise how companies can list, and get through the process. They are mostly Taiwanese companies that want to list their local Chinese operations.
What is the best deal you did in 2001?
Jiangsu Nadasoft company. This was issued at HK$.036(P/E: 46) but has been as high as HK$2. This company makes security software such as firewalls.