Friday 29 Mar 2024
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This article first appeared in The Edge Malaysia Weekly on August 22, 2022 - August 28, 2022

SHAREHOLDING changes may be afoot at CIMB Group Holdings Bhd’s stockbroking joint venture (JV) with China Galaxy Securities Co Ltd (CGS). Sources say CIMB may exit the venture, known as CGS-CIMB Securities, by divesting its remaining minority stakes to CGS by year-end.

If things go as planned, CGS — one of China’s largest stockbrokers — will end up as the sole shareholder in the venture. It remains to be seen whether CIMB would then want to separately pursue stockbroking — either on its own or through another partner — or exit the business altogether, sources say.

CIMB’s current JV with CGS is on two fronts — on the regional stockbroking business and the Malaysian one.

In January 2018, CIMB formed a 50:50 JV with CGS to operate a regional stockbroking business. It was a prominent development at the time, as it was the first foray by a Chinese stockbroker into Southeast Asia.

To form that JV, CIMB had sold a 50% stake in CIMB Securities International Pte Ltd — under which all its stockbroking businesses outside of Malaysia was parked — to CGS for S$167 million. The disposal price was based on a multiple of 1.3 times the latter’s consolidated net asset value of S$256.9 million as at end-2015.

Later, in July 2019, the companies officially set up their Malaysian stockbroking JV. This was a 50:50 partnership between CIMB’s and CGS’ wholly-owned subsidiaries — CIMB Group Sdn Bhd and China Galaxy International Financial Holdings Ltd (CGI) respectively.

CIMB had earlier acquired dormant stockbroker Jupiter Securities Sdn Bhd from Olympia Industries Bhd for RM55 million to enable it to have a separate stockbroking licence to facilitate the local JV with CGS. CIMB already had its own stockbroking licence under its investment bank.

Last December, in an interesting development, CIMB reduced its 50% stake in the local and regional stockbroking JVs. In a Dec 7 statement, it said it disposed of 24.99% and 25% of its shareholding in CGS-CIMB Securities International Pte Ltd (CSI) and CGS-CIMB Holdings Sdn Bhd (CCH) respectively to CGS. It did not disclose the disposal price.

With that, CIMB’s interest in CSI (the holding company of the regional JV) and CCH (holding company of the local JV) fell to 25.01% and 25% respectively, while CGS’ interest correspondingly increased to 74.99% and 75%.

According to the statement, the shareholding change happened because CGS — through CGI — exercised a call option that was included in the initial JV agreement to buy the additional stake. (The JV had included built-in mechanisms to alter the shareholdings of the parties via call or put options.)

CIMB stressed, however, that its existing business collaboration would continue as usual despite its minority holdings.

More banks ease shareholding in stockbroking

All eyes are now on CIMB — the country’s second-largest banking group by assets — to see whether it will sell its remaining stakes in the JVs to CGS. And, if it does, will it exit the stockbroking business entirely?

In an email reply to The Edge, CIMB says: “CIMB does not comment on reports speculative in nature. Currently, CIMB Group’s interest in CGS-CIMB Securities is at 25% and we will make the necessary announcement to the market should that change.”

An industry source says he would not be surprised if CIMB were to end its JV with CGS.

“There has been talk that CIMB would like to have full control of some of its capital market [businesses]. Word is that they will exit this venture and then recycle the capital to other opportunities that may come along the way,” the source, a seasoned banker, tells The Edge.

“From what I understand, they don’t want to have minority stakes — they have either controlling stakes or no stake at all.”

He notes that the partnership with CGS was formed while CIMB was under a different leadership. At the time, CIMB was led by group CEO Tengku Datuk Seri Zafrul Aziz, who left in March 2020 to become the country’s finance minister. In June that year, Datuk Abdul Rahman Ahmad, former president and CEO of Permodalan Nasional Bhd, succeeded him.

“If they exit the JV, whether they want to get back [into the stockbroking business] is hard to say — they could do it on their own or with another partner. But it’s a very tough business and if they get back in, it’s probably for strategic reasons. Maybe they see it (stockbroking) as part of their entire wealth offering,” the source says.

As it stands, of Malaysia’s eight domestic banking groups, only Alliance Bank Malaysia Bhd — the smallest — is without a stockbroking business. It recently completed the sale of its stockbroking business to Phillip Futures Sdn Bhd, which is owned by Singapore-based PhillipCapital, an investment and wealth management group.

Alliance Bank’s outgoing group CEO, Joel Kornreich, told The Edge last December that the move would not make the bank any less competitive or appealing, as it will continue to be able to offer stockbroking services to customers through a partnership with PhillipCapital.

Stockbroking is a highly competitive and fragmented industry in which rapid digitalisation is taking place. Margins are tight and unlikely to grow, Kornreich noted.

There is already a trend among the banking groups to ease their shareholding in stockbroking. Apart from CIMB, the RHB banking group in June 2020 sold its stockbroking businesses in Singapore to Phillip Securities Pte Ltd, also a member of the PhillipCapital group.

Interestingly, in April last year, Bloomberg reported, citing CSI CEO Carol Fong, that the company was targeting an IPO with a valuation of at least S$1 billion by 2025, as part of the group’s long-term strategy.

 

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