Tuesday, December 3, 2013

China Cinda Asset Management (Stock Code: 1359.hk): First AMC IPO

China Cinda Asset Management (CCAM Stock Code: 1359.hk) will soon become the first stated-owned bad debt AMC (asset management company) ever listed after its H-shares IPO (initial public offering) in Hong Kong.

China Cinda Asset Management will also become the biggest IPO in Hong Kong this year, with its IPO size up to HKD$19 billion. Its IPO share price is to be set between HKD$3.00 (lower price limit value) and HKD$3.58 (upper price limit value) per share, and will start trading on Hong Kong Stock Exchange (HKEx Stock Code: 388.hk) from December 12, 2013 onwards. Joint IPO sponsors are BofA (Bank of America) Merrill Lynch (Far East), Goldman Sachs (Asia) LLC, Credit Suisse (Hong Kong), and Morgan Stanley (Asia).

IPO cornerstone investors are China Life Insurance Group (CLIG Stock Codes: 601628.sh for A-shares and 2628.hk for H-shares), OZ Funds (Och-Ziff Capital Management Group LLC), Norges Bank (Norway Central Bank), Farallon Entities Investment Vehicles (Farallon Capital Management LLC), Gatherspring (Haixia Industrial Investment Fund), Ping An China Asset Management (PAAMC Hong Kong under Ping An Insurance), ShenZhen Rongtong Capital Management, Oaktree Capital LLC, Shandong state-owned Assets Investment Holdings, Upper Horn Investments (GuangDong Yudean Group) etc.

China Cinda Asset Management (CCAM) is the leading AMC (asset management company) in mainland China. Its core business is distressed asset management, which includes distressed debt asset management, Debt-to-Equity Swap (DES)* asset management, as well as liquidation, custody or restructuring services for distressed entities. Latest financial data from IPO Prospectus indicates that distressed asset management alone already contributes over 72% of its total net profits for the whole company. Other than its core business, Cinda (Stock Code: 1359.hk) also runs various financial services such as securities, futures, financial leasing, trust, insurance, fund management etc.

* By definition, Debt-to-Equity Swap (DES) refers to a special financial practice allowing Cinda AMC to acquire equities from obligors by converting debts originally owned by those obligors. Book value of DES (debt-to-equity swap) assets currently held by Cinda AMC has already reached RMB 43.7 billion (as of end-June for this year).

After listing, China Cinda Asset Management (CCAM Stock Code: 1359.hk) will use its IPO net proceeds to develop core business, other asset management business (e.g.: private equity funds) and financial investment (e.g.: principle investment), and also to increase capital contribution or liquidity towards financial subsidiaries within its group. China's Ministry of Finance (MoF), its largest shareholder, will then have its stake drop from 83.46% to no more than 70%. Other major strategic shareholders are PRC National Council for Social Security Fund (NSSF), CITIC Capital Financial Holding, UBS AG, and Standard Chartered Bank. For future business expansion, China Cinda Asset Management (CCAM) will continue to raise more funds after this IPO, via capital markets such as third-party credit funds through insurance companies, debt-to-equity swaps (DES), debt issuance etc.

Dividend policy of Cinda AMC generally depends on its financial or credit situations, cash liquidity flows, capital adequacy ratio (CAR), future business expansions, regulatory or statutory restrictions, cash dividends gained from subsidiaries etc. Allocation is supposed to be no less than 10%b based on the conditions as outlined in IPO Prospectus (Source: HKEx - Hong Kong Stock Exchange).

China Cinda Asset Management (CCAM Stock Code: 1359.hk), together with other three AMCs (i.e.: Great Wall Asset Management, Orient Asset Management and Huarong Asset Management), were the big-four asset management companies (AMC) established since 1999 onwards to buy bad debts from stated-owned Chinese commercial banks, or else these banks would still be full of non-performing loans (NPLs) and could not go public.

Major risk factors for investing in Cinda AMC are thus:
(1) Cinda AMC must keep the quality of its distressed debt asset portfolio;
(2) Cinda AMC only has limited influence on DES (Debt-to-Equity Swap) companies;
(3) Distressed debt assets of Cinda AMC focus too much on certain companies or industries;
(4) Cinda AMC must keep minimum solvency margin ratio (SMR) for its insurance business;
(5) Quality of guarantees or collaterals for securing distressed debt assets may deteriorate;
(6) Regulatory compliance environment in PRC (People's Republic of China) may suddenly change etc.

Christmas is Coming...

It is December now. December is not just a month representing the end of a financial year. December is also a wonderful shopping season for all retail businesses.

As Christmas holiday is coming soon, We, Mr China, here would like to wish you all Merry X'mas in advance!

As usual, Mr China does want to show you our special greetings for Christmas celebration. Do not miss and go to take a look: our Special Christmas Greetings.

So enjoy your Christmas holiday! And Happy New Year in advance!!


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