China: Citi staffs up for Belt and Road

Citi is to add at least 25 bankers to its Belt and Road coverage team, in a signal that international banks are moving from vague comments about the potential of the Chinese international infrastructure policy to concrete action in expectation of lucrative work.

Citi says the additions – a combination of new hires and redeployments of existing corporate bankers – will take place over the next two years.

Gerry Keefe, corporate banking head Asia Pacific, says there is no clear need for additional teams in capital markets and investment banking, where the capacity is already in place. “A lot of this is going to be more about flow-type banking capabilities: cash management, trade finance, good old-fashioned lending,” he says. “That does require some additional resources.”

Keefe says the Belt and Road Forum in Beijing in May, hosted by China’s president Xi Jinping, was a turning point in terms of client interest in the strategy. “Belt and Road came into much sharper focus for our clients” following that event, he says. “When we go back and write the history of Belt and Road, that will be seen as the moment when they fired the starter gun.”

After hearing more about Belt and Road in client meetings from then on, Citi identified a representative group of Chinese clients in 12 industries deemed to be Belt and Road but who are, for the most part, in the early days of making big outbound investments from China, and sent bankers out to learn about their strategy, hopes and opportunities.

This was partly to understand whether clients were likely to use Citi “or if it was going to be a China home game, underwritten by Chinese banks” who would also take the ancillary business, says Keefe.

But the feedback was “overwhelmingly positive. We came back from those meetings with a very detailed template, industry by industry, of where clients were interested in going, what their key concerns and ambitions are, and what products and advice they will be looking for,” he says.

Citi followed up with a Belt and Road conference of its own in Beijing in September, an event Keefe says “had a level of engagement I have never seen in anything else we’ve done. It convinced me: it’s real, it’s happening.”

A key question for international banks trying to make sense of Belt and Road has been whether projects will be done on commercial terms, though increasingly it appears those banks will not involve themselves in the direct lending into Belt and Road projects, but instead focus on the ancillary business and advisory mandates that are generated by them. Bankers tend to be at least as excited by the opportunities in FX hedging, risk management structures and trade finance as they are about project finance.

“We are going to do things with our clients that are bankable and commercial,” Keefe says. “We have a target market of clients in China that is very carefully selected: large companies we think are winners, who are going out to do things that are commercial in nature.” Citi’s network in Belt and Road countries – active in 58 of 65 Belt and Road countries, and banking 85% of the Fortune 500 – “should pay off for us by allowing us to manage high-volume and high-margin business, and keep out of lending for lending’s sake”.

However, even state-backed Chinese banks claim they won’t just be lending for lending’s sake, and that everything they participate in must be on commercial terms. Even the Silk Road Fund says the same. For this to be true, either some expected projects won’t be built, or Belt and Road is going to have to be very heavily focused on projects that are less about policy and more about commercial returns, which looks a big ask in some Central Asian countries in particular.

Still, it increasingly appears there will be plenty for banks to do, even if lending is not at the heart of it. “What’s happening in China is that you have companies that are operating at the level of global leaders in terms of production efficiency, capacity and technical capability, but who for the most part have not operated outside of China in any huge way,” Keefe says. Hence, they need advice.

Citi’s existing coverage model will not change much for Belt and Road or for the new hires. That model has a primary account manager based in China covering a client’s head office, while subsidiary account managers based in-country are also part of that client’s coverage, especially through the nine China desks the bank has outside China. But “the number of bankers devoted to China business will go up,” Keefe says.

A detailed analysis of Citi’s strategy in Asia, including an interview with Asia CEO Aristeguieta will appear in Euromoney in December