China International Capital Corp. was once known as China’s answer to Goldman Sachs. Run by Levin Zhu —the son of then-Premier Zhu Rongji—it helped take some of the country’s biggest companies public, including China Construction Bank and China Petroleum & Chemical. The era of mega-IPOs is gone, and so is CICC’s dominance. It hasn’t been China’s top investment firm since 2005 and has fallen over the past decade from first place in revenue to 21st in 2013.
Now Zhu is gone, the bank has new leadership, and it’s planning an initial public offering this year to raise capital and expand into new businesses—moves that Zhu once resisted. “The firm has hit a bottleneck and is stuck in the middle,” says Chi Man Wong, an analyst at China Galaxy Securities in Hong Kong. “They have a decent investment banking business, but that’s not an exciting story, and I can’t see a growth driver.”
The man who ran investment banking at CICC during its heyday, Bi Mingjian, returned as its chief executive officer in March, filling the position vacated when Zhu resigned in October. The IPO he’ll oversee, which may raise $1 billion, would potentially double the capital that CICC could use to support margin lending and its brokerage and asset management businesses, big sources of revenue for CICC’s rivals.
The expansion is crucial because the industry has shifted from a focus on taking companies public to providing a range of financial services to corporations and wealthy individuals. Net revenue from traditional investment banking—underwriting stock and bond issues and providing financial advice to corporations—fell to 12 percent of the investment banking industry’s total revenue last year, from 17.8 percent in 2011, according to the Securities Association of China. Over that time, investment income—what the companies earn from trading for their own accounts and other market activities—jumped to 27 percent, from 3.7 percent. “The market landscape has undergone dramatic changes, and it’s no longer investment banking-focused,” says Bei Duoguang, who worked with Bi at CICC and now runs his own microfinance business. “It’s critical to see if CICC can adjust strategy according to the market changes amid the intensifying competition.”
Bi was most recently a partner at private equity firm Hopu Investment Management in Beijing. He’ll “have some catching up to do” to oversee a wider portfolio, says Bob Dodds, who worked at CICC with Bi for seven years and now heads DRP Capital, which advises on cross-border China acquisitions. “They have to develop new products and find new revenue sources,” Dodds says. “Sometimes that also requires a different style of banking and a different type of team as well, so they’ve got a lot of challenges.” Bi and CICC declined to comment.