Early start, late finish

China Everbright finally gets approval to revamp­­­­­­­­


At last, says Tang Shuangning

Among China’s state giants two particular conglomerates stand out. Citic Group and Everbright Group are ministry-level institutions, and only they report directly to the State Council. They were established in the late 1970s as a means to usher in market reforms. Citic went on to pioneer a number of firsts in the capital markets (see WiC232). But Everbright, too, had a pathfinding role. In August 1983 it was the first state firm to be established and headquartered in Hong Kong, where its founder Wang Guangying also broke new ground as the first boss of a state-owned firm to be photographed in a nightclub. It was symbolic, mind you: the year was 1984, just after China and Britain had signed the joint declaration on the handover of Hong Kong. Wang cut the opening ribbons at the gigantic Club BBoss venue, quoting Deng Xiaoping’s maxim that there would “still be dancing, still be horseracing” in Hong Kong when the city was returned to Chinese rule.

Three decades later, and Everbright has lagged behind Citic in demonstrating its reformist credentials. This year Citic completed a $37 billion asset injection into its Hong Kong unit Citic Pacific, the biggest reverse takeover in the territory’s history. It has also brought in new shareholders including American insurer AIA and the Chinese internet giant Tencent. The moves have been held up as an example of Beijing’s drive to reform and retool the state sector.

Now Citic’s sibling could be set to follow suit, following the State Council’s approval of a plan to revamp Everbright’s ownership structure. The conglomerate said it will be transformed from a wholly state-owned enterprise into a joint stock company. This should pave the way for the introduction of new shareholders and an eventual market listing (Citic undertook a similar change in identity in 2010).

In fact, Everbright has been earmarked up for an IPO from as far back as 2003. According to the Economic Observer, the plans have been redrafted at least four times since then. One key obstacle is the group’s complex structure, straddling two corporate headquarters. Its Hong Kong holding firm controls at least 20 overseas units, including two Hong Kong-listed companies. In 1990 a Beijing headquarters was established to take control of its mainland businesses, including Everbright Bank and Everbright Securities. “Both use the same Everbright brand but there are conflicting interests and the duo’s financial statements cannot be combined simply,” the newspaper suggests.

What next for Everbright then? The State Council’s missive means that there will finally be a single Everbright, a financial conglomerate based in Beijing with assets worth $400 billion at the end of last year (mainly held through Everbright Bank). Caijing magazine reckons the Ministry of Finance and Central Huijin (the major shareholder of the state banks) will jointly control the equity of the new Everbright Group. But 21CN Business Herald believes Everbright will then follow Citic’s path, introducing private sector investors before finally going public. But the company says there is no timetable for an IPO, as the more immediate task is restructuring dozens of its already-listed units while making the necessary disclosures relating to bringing in new capital.

Not being in a rush may be no bad strategy, as the conglomerate has been plagued by errors in the past. Zhu Xiaohua, former chairman of Everbright Bank and head of its Hong Kong headquarters, was dismissed for corruption in 1999. A year ago, a trading glitch at Everbright Securities rocked the A-share market (see WiC205) leading to regulatory retribution and much embarrassment.

“Citic was the first to eat a crab, showing people crabs are edible. Everbright was the first to eat a spider, telling people they cannot eat spiders. Both are significant contributions to China’s reforms,” Everbright’s chairman Tang Shuangning said, in a tacit nod to the company’s past failings, reports CBN.

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