Citic Securities listed its majority stake in China AMC for sale on the Beijing Financial Assets Exchange (BFAE) yesterday at an asking price of Rmb8.16 billion ($1.3 billion).
It means the Chinese investment bank is seeking 8% more than its initial quotation of Rmb7.56 billion put forward this May. The new price represents 7.2% of China AMC’s assets under management, compared with 6.6% when the auction was first announced.
The question of who will buy into China’s largest fund management company has been an industry guessing game ever since news of the 51% divestment broke two months ago.
The filing on BFAE’s website states that the sale is divided into four tranches of 10%, and one of 11%.
US-based investment manager T. Rowe Price has reportedly been at the negotiating table and is tipped to become China AMC’s only foreign shareholder. The firm declined to comment for this article.
Bids for the four remaining stakes are required to come from domestic non-financial state-owned enterprises (SOEs) with registered capital and net assets of at least Rmb1 billion, respectively, by the end of 2010. Sinopec has been mooted as a likely buyer.
The inquiry period lasts for 20 working days and will be closed on July 29 when a deposit – equal to 30% of the asking price – should be transferred to the account designated by BFAE. Citic Securities is demanding a one-off payment.
T. Rowe Price already acts as foreign adviser on China AMC’s qualified domestic institutional investor (QDII) fund: the Global Select Equity Fund. The US firm evidently has ambitions to expand in China and was selected in the first batch of foreign investment managers for the National Council of Social Security Fund (NCSSF).
Despite the rise in the asking price, this is still regarded as a bargain, especially considering the possibility of a foreign buy-in, notes Shanghai-based consultancy Z-Ben Advisors.
Last year, Mitsubishi UFJ paid a price-to-AUM of around 8.96% for a 33% stake in SWS MU fund management company from BNP Paribas Investment Partners.
However, China’s fund management industry has been undergoing a consolidation phase and overall AUM has been on the slide since 2007. This year, nine out of the top 10 FMCs have seen their AUMs fall.
China AMC is not immune to the trend – its AUM has dipped from Rmb224.71 billion at the end of last year to Rmb221.52 billion as at June 30. It has also had new product launches on hold since last January as its 100% holding breached compliance rules set by the China Securities Regulatory Commission (CSRC).
The regulator’s “1+1 rule” stipulates that a firm can hold no more than a 49% stake in one domestic fund management company and a minority stake in another.
However, the 51% divestment will solve that issue; while Z-Ben also notes that China AMC has maintained its market share (9.5%) compared with the country’s 64 other FMCs by generating strong performance and using dividend payments to discourage redemptions.
“Once the firm becomes compliantly owned, we fully expect the CSRC to reinstate their new product privileges,” concludes Z-Ben. “When this happens, China AMC will find itself in a unique position to take full advantage of the multiple launch channels now in place, and its market share will continue to expand.”