News this week that Ant Group had outbid Citadel Securities in the race to buy Credit Suisse’s investment banking joint venture in mainland China, with the Hangzhou firm tabling an offer understood to be around $250 million, somehow managed to be both a shock and not a surprise at all.
Let’s start with the seller’s position. In the wake of its acquisition of Credit Suisse, UBS made great play of the lack of overlap between the two firms’ operations, particularly in Asia.
Good public-relations spin, some said, but there was plenty of truth in it. As we wrote at the time, the two Swiss lenders were strong in different parts of the region: UBS in northeast Asia and Credit Suisse in southeast Asia.
China was the exception. Both had spent years building their mainland units. UBS was the more active of the two, with a mutual-fund joint venture and a stronger investment banking franchise focused on bigger-ticket capital markets deals.
It arguably had more panoramic ambitions: witness its memorandum of understanding with Beijing-based ICBC, the world’s largest lender by assets, to explore banking and wealth management opportunities at home and abroad. It was also one of only two foreign investment banks to post a profit in Asia’s largest economy in 2022.
Credit Suisse’s focus was always narrower. It specialised in high-yield debt, and in the equity space for tech and some consumer firms, with a penchant for deals that didn’t always pan out well.
Its Sino-foreign brokerage posted a larger loss in 2022 than any of its peers.
UBS could have opted to retain its former rival’s China JV. But there was so much overlap, so much duplicated cost and risk.
On the block
It has bidders for the asset: at least six in the early running, now winnowed down to three. On the block is a 51% stake in Credit Suisse Securities (China), attached to the remaining 49%, held by Hunan-based Founder Securities, as well as a banking licence and a securities licence, which can also be tuned to offer wealth-management services.
Other buyers may come forward: the auction process is likely to drag on for months, with a deal unlikely to be closed before the start of the fourth quarter.
Any such deal will require multi-layered regulatory approval, plus consent from UBS and Founder Securities.
Assuming no new bidders throw their hat in the ring, the Swiss firm faces a basic choice of selling the unit at a slightly lower price to Citadel – understood to be $210 million, much lower than some of the earlier reporting – or accept Ant’s higher offer.
In the pre-Covid era, bidders would have been all over the asset like bees round a honey pot. But Beijing will turn its fortunes around
The more financially appetising option is also laden with greater risk, given Ant’s rocky relationship with the ruling Party and Beijing’s purported preference of seeing the business sold to another foreign buyer.
Even though Credit Suisse put a $326 million valuation on its mainland JV two years ago, UBS will likely view anything over $200 million as a good deal.
Both bids are in that ballpark, and it is worth noting that despite the swirl of negative news, China’s economy is still growing, packed with ambitious consumers and companies, and on course to dominate key sectors, including electric vehicles.
Yes, in the pre-Covid era, bidders would have been all over the asset like bees round a honey pot. But Beijing will turn its fortunes around, and when that happens, a winning offer not far north of $200 million may in hindsight look like a steal.
Ant again
And so, to the bidders. Citadel’s interest is pretty clear-cut: the US firm is busy expanding in the region, having opened in Tokyo in August 2022; it now has 15 offices across Asia, North America and Europe.
Ant Group’s thinking is more multifaceted. The fintech firm founded by billionaire Jack Ma has long harboured ambitions to build its own securities business.
Plans to raise $34.4 billion in what would have been a world-record IPO were abruptly cancelled by Beijing in November 2020, days before its shares were set to start trading in Hong Kong and Shanghai. Much of the blame was pinned on Ma for reportedly getting on the wrong side of president Xi Jinping.
Ant has largely lain low since then. So has its founder, with Ma occasionally popping up for lunch in the likes of Tokyo and Melbourne. So why would it want to bid for Credit Suisse’s mainland brokerage now?
There are a few reasons. First, there has probably never been a better time to buy a well-run, foreign-controlled mainland brokerage.
It is easy to forget this is the first time such an asset has been put up for sale. It could be years before it happens again.
Second, Ant Group still has global ambitions. It was announced in January that it was close to buying MultiSafepay, a Dutch payments firm valued at $200 million. Owning your own investment bank, which you could fill with M&A advisers with agency to scout for prized assets on every continent, makes pretty good financial and strategic sense.
Then there is that failed IPO, which must still sting. Is it unrealistic to imagine Ant Group filing to complete its listing in 2025 or 2026? No.
Will it raise as much as it was slated to back then? Surely not.
Will the process be aided by an underwriter formerly known as Credit Suisse Securities (China) but now called, let’s say, Ant Securities? It certainly wouldn’t hurt.
