Citigroup considering onshore cash equities business in China

Above, reflections are seen on the glass facade of a Citibank branch in Beijing, China. (Reuters)
Updated 06 October 2017
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Citigroup considering onshore cash equities business in China

HONG KONG: Citigroup is considering setting up an onshore cash equities business in China and expanding research coverage of Chinese stocks, to boost its share of the business in Asia, said the head of its regional equities unit.
The US-headquartered bank is also looking to add at least 10 people to the unit, including bankers and technology staff, mainly at its Hong Kong and Singapore hubs, Richard Heyes told Reuters.
Citi’s sharpened focus on its Asia equities business, which includes stock trading and research, is part of its global effort to bolster trading technology, hire senior bankers and boost financing to hedge funds.
“It’s an interesting opportunity, one we are looking very closely at,” Heyes said, referring to setting up an onshore cash equities business in China, which he said was in its early stages. He declined to give details.
“At the moment we don’t feel we have a competitive disadvantage doing it from Hong Kong in the way the majority of people do. But over time, do I think we should strongly think about on-ground presence? Yes.”
Analysts said China-listed shares’ inclusion in the US index publisher MSCI’s emerging-markets benchmark this year, a milestone for global investing, would lead to a jump in demand for brokerage and research services.
That came on top of the introduction of programs allowing two-way trading between stock markets in Hong Kong and Shanghai and Shenzhen, as part of Beijing’s efforts to open up capital markets.
China’s brokerage revenue pool touched $41 billion in 2015, showed a report last year by Quinlan & Associates.
Assuming institutional broking revenue is 10 to 15 percent of the total, a 1 percent market share would bring $40 million to $60 million in annual revenue to an equities house in the world’s second-largest economy, the consultancy said.
To tap into an expected demand surge, Citi, which provides research on 175 China-listed firms, plans to increase coverage to 200 by year-end and 250 in the longer term, Heyes said.
“We have seen very clearly, as one of the biggest players in (the Hong Kong stock) connect, a very significant ramp up in the opening of accounts. It’s very clear that many people are getting prepared for future activity in the China market.”
Citi is also looking to bolster financing support for hedge funds, to help win more trading business and boost its Asia equities market share.
“We have had very meaningful success with some very important, large global hedge funds in the US We are now expecting or have commitments from many of them to on-board us in Asia either by end of this year or early next year.”


Egypt sees surge in share offerings, testing market

Updated 18 September 2018
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Egypt sees surge in share offerings, testing market

  • Public share sales first in more than a decade
  • International volatility could deter investors

CAIRO: A surge of new shares offerings over the next few months will test whether Egypt can withstand emerging market contagion after currency crises that rattled Turkey and Argentina last month.
The government hopes offerings in five state-controlled firms already trading on the stock exchange will help trim its budget deficit.
Five private companies planning initial public offerings (IPOs) by the end of the year which could spur investment and private-sector growth, which has been moribund since Egypt’s 2011 uprising. A sixth private company plans a rights issue.
Economists say international participation would help appetite among local investors but international market volatility may be chasing them away.
“A realistic good scenario is that you stick to your timeline and you’re able to sell your entire pipeline of offerings at very compelling valuations,” said Wael Ziada, head of investment company Zilla Capital.
“A bad scenario is that if there is a deep, deep crisis in emerging markets, you may have to pull some of these offerings,” said Ziada, former head of research at EFG Hermes, Egypt’s biggest investment bank.
The Japanese brokerage Nomura this month listed Egypt as one of seven emerging market countries, including Turkey and Argentina, at risk of foreign exchange rate crises.
An economist at an Egyptian investment company said the government’s sudden push to sell shares after a hiatus of more than a decade was stretching the ability of banks managing the offerings and the appetites of investors.
“You have to do the research, test the market, do the marketing and do a road show,” said the economist, who declined to named. “The government should be staggering the offerings.”
Egypt is working on selling shares in at least 23 state-owned companies over the next few years. Analysts say much of the state sector has been suffering heavy losses and companies need major management overhauls and modernization.
The government on Monday it said it would offer five of these in the coming three months. It will start in October with a 4.5 percent stake in cigarette maker Eastern Company and a 20 percent stake in Alexandria Mineral Oils Company (AMOC).

TEN BILLION TARGET
The government is hoping the sales will help it reduce its budget deficit to 8.4 percent of GDP in the year to June 2019 from 9.8 percent last year.
Finance Minister Mohamed Maait said last week the government had budgeted 10 billion Egyptian pounds ($560 million) in revenue from share sales between now and June 30, when the current fiscal year ends.
“However, if we can get more we will be happy,” he said.
At the same time, private companies are hoping to benefit from an improved macroeconomic climate after IMF-backed reforms and an increase in tourism revenues and natural gas production.
Mohamed Elakhdar, Beltone Investment Banking’s managing director, estimated that the private offerings would reap more than 10 billion Egyptian pounds — a similar figure to expected revenue from state company sales, but over just three months.
Beltone is managing the IPOs of leasing company Sarwa Capital and textiles company Giza Spinning and Weaving and a rights issue for a third company
“Appetite, yes. There is, I believe,” said Hany Farahat, senior economist at Egyptian investment bank CI Capital.
“The key challenge is related to the process, how these transactions have to be structured and marketed to investors. This is what could make them a big success or failure.”
Another round of IPOs — both private and government — is expected in the first six months of 2019.
“We’re on a road show right now. The demand we’re seeing has been fairly healthy,” said Beltone’s Elakhdar told Reuters. “People are viewing Egypt differently than the rest of emerging markets.” ($1 = 17.8600 Egyptian pounds)