CICC's IPO rejection rate during the year was as high as 46.67%, and the underwriting scale of Hong Kong stocks ranked first

(Image source: Visual China)

Blue Whale News, June 27 (Reporter Wang Wanying) The veteran head brokerage CICC (601995. SH) is facing a "growth crisis" in its investment banking business.

The Blue Whale News reporter paid attention to the fact that as of June 27 this year, CICC's IPO withdrawal rate reached 46.67%, ranking first among the "three Chinas and one China". In addition, its ranking as the lead underwriter in the A-share market is declining year by year, from second place in 2021 to fourth place in 2023. The underwriting amount shrank from 100.538 billion yuan in 2021 to 32.245 billion yuan last year. In 2023, CICC's investment banking business revenue will be RMB3.242 billion, a decrease of 40.3%, ranking first in its main business. In the first quarter of this year, the net income of investment banking fees was 450 million yuan, a year-on-year decrease of 25.02%, resulting in a decline in current performance.

Industry experts pointed out to reporters that CICC still has the advantages of investment banking business, but its advantages have been weakened, "there are many large projects in the early stage, and the ability of the investment banking team to obtain resources is more needed, and at present, there are many small and medium-sized projects, and there are many projects with scientific and technological attributes, and the ability requirements are gradually shifting to the direction of industry understanding, value discovery, asset pricing, compliance and risk control, etc., which is more replicable and less difficult to establish barriers." ”

It is worth noting that although there is growth pressure on the A-share IPO sponsorship business, CICC's Hong Kong stock business development has performed well. According to Wind data, in 2023, the number of CICC Hong Kong stock sponsorship projects will reach 24, accounting for 16.39% of the market share, ranking first among Hong Kong stock brokers.

During the year, the withdrawal rate ranked first in the "three Chinas and one China".

With the adjustment of the pace of A-share IPOs, the sponsorship business of securities firms continued to slow down. According to the data reported by Ernst & Young, in the first half of 2024, less than 50 companies in the A-share market are expected to go public for the first time, raising 32.9 billion yuan, and the number of IPOs and fundraising will drop by 75% and 84% year-on-year, respectively. IPO proceeds were the lowest year-on-year since 2017. Looking at the second quarter of 2024, IPO activity has slowed further.

Zeng Fengguang's leading brokerage investment banking business is also facing challenges. The reporter noted that as of June 27, CICC's IPO withdrawal rate was as high as 46.67%, ranking first among the "three Chinas and one China", and the number of projects voluntarily withdrawn reached 21.

(Image source: Wind data)

Judging only from the number of withdrawals, CICC is not the first. In the first half of the year, CITIC Securities withdrew a total of 33, and the reason for its high rejection rate is also that the denominator - the number of sponsors is only 45, about half of that of CITIC Securities.

This also reveals the dilemma of CICC in recent years, and the former star investment bank may be going "downhill".

Liu Guohui, a researcher at Tiger Sniff Miaotou, pointed out to the Blue Whale News reporter, "CICC still has the advantage of investment banking business, but the advantage gap is narrowing compared with the head of the industry. ”

This can be seen in the change in CICC's ranking as the lead underwriter in the A-share market. In 2021, it completed 23 A-share IPO projects, with a lead underwriting amount of 100.538 billion yuan, ranking second in the market, and in 2022, these figures were 32 and 52.863 billion yuan, ranking third in the market. In 2023, 17 A-share IPO projects will be completed, with a lead underwriting amount of 32.245 billion yuan, ranking fourth in the market.

In 2023, CICC's revenue will shrink by 12% year-on-year to RMB22.990 billion, and its net profit will shrink by 19% year-on-year to RMB6.156 billion, marking the second consecutive year of revenue and net profit. Among them, the operating income of the investment banking segment was 3.242 billion yuan, a year-on-year decrease of 2.188 billion yuan, a decrease of 40.3%, which was one of the main reasons for the decline in overall performance.

In the first quarter of this year, CICC achieved operating income of 3.874 billion yuan, a year-on-year decrease of 37.61%, and net profit of 1.239 billion yuan, a year-on-year decrease of 45.13%. The net income of investment banking fees was 450 million yuan, a year-on-year decrease of 25.02%. One of the reasons for the decline in revenue was the decline in net fee income from investment banking and brokerage business, the company said.

Under pressure, the cold is also transmitted to the employee level. According to the annual report, the number of CICC's investment banks increased to 2,410 from 2020 to 2022, an increase of more than 800 in two years. However, by the end of 2023, the number of CICC's investment banks had decreased to 2,370, accounting for 16% of the total number of employees.

According to foreign media reports, a source revealed that CICC plans to cut one-third of domestic investment bank employees from 2024 to 2026, reducing the number of employees by about 13% per year, and the number of investment bank employees will be reduced by at least 10% this year. Under the large-scale layoffs, CICC was once again rumored to have cut salaries, and the basic salary was reduced by 25%.

Regarding the decline of CICC's investment banking business, Liu Guohui pointed out to the Blue Whale News reporter, "The reason is that there are many large projects in the early stage, and the investment banking team's ability to obtain resources is more needed, which can form barriers through key people, and CICC has more advantages." Now there are many small and medium-sized projects, many projects with scientific and technological attributes, and the ability requirements are gradually shifting to the direction of industry understanding, value discovery, asset pricing, compliance and risk control, etc., and the deeper level is the organizational structure, personnel allocation, incentive constraints, etc., which are more reproducible and less difficult to establish barriers. Over the years, the pattern of investment banking has risen and fallen, the rise and fall of Ping An Securities and Guosen Securities, and the rise of China Securities Construction Investment and Minsheng Securities have proved this. ”

The sponsor project was involved in fraudulent issuance, and the withdrawn project was "flawed"

Recently, a sponsorship project due to fraudulent issuance has brought CICC to the forefront.

On June 11, Shanghai Silchip Technology Co., Ltd. (hereinafter referred to as "Silcore") received a fine from the Shanghai Stock Exchange. After investigation, Silxin fabricated material false content in the announced securities issuance documents, and its total inflated operating income in 2020 was 15.3672 million yuan, accounting for 11.55% of the operating income of the current year; The total inflated profit totaled 12.4617 million yuan, accounting for 118.48% of the total profit of the year.

The Shanghai Stock Exchange decided to impose a disciplinary penalty on Silchip for not accepting the issuance and listing application documents submitted by the issuer for 5 years; The SFC imposed a fine of up to $16.5 million on Silchip as a warning and punishment.

At present, there is no corresponding punishment for intermediaries such as CICC. However, some industry insiders said that sponsors should bear some responsibility for this.

In an interview with Blue Whale News, Miao Zaichao, a lawyer from Beijing Deheheng Law Firm, pointed out that sponsors play an important role in the corporate issuance process, and their responsibilities include due diligence on issuers, review of information disclosure, and providing professional opinions. According to the relevant regulations, the sponsor institution shall be responsible for the authenticity, accuracy and completeness of the enterprise it sponsors. If the sponsor fails to identify the problem in the case of financial fraud, it may be deemed to have failed to perform its duties.

Liability is based on the following aspects, for example, whether the sponsor was negligent or deliberately neglected during the review process, and the due diligence failed to reveal obvious signs of financial fraud; A lack of experience or expertise on the part of the team can lead to inadequate performance. and whether the sponsor's internal review process is robust and conducted in accordance with standard procedures.

If the issuer still violates the law despite the sponsor's due diligence, the sponsor's liability should be limited; And if the sponsor is found to have failed to perform its duties, the regulator may penalize it in accordance with laws and regulations. These penalties can include fines, suspension of business, or even revocation of qualifications.

"The responsibility of the sponsor in the issuance and subsequent violations of laws and regulations depends on the degree to which it performs its duties. In the future, regulators may increase the supervision and punishment of sponsors to ensure the healthy operation of the market. Lawyer Miao Zaichao said.

Among the sponsorship projects withdrawn by CICC this year, there are also many projects with questionable information disclosure and flaws in financial and internal controls.

For example, Shanghai Shengsheng applied for a Main Board IPO on June 30, 2023, and was hastily withdrawn after a round of inquiries. During the reporting period, Shanghai Shengsheng had a situation where the internal control management of the actual controller and related parties' capital lending was not standardized.

The Zhongke Synthesis Project, which was withdrawn in January this year, was also no longer followed up after a round of inquiries. The company was questioned by the regulator for its doubtful disclosure, and the identification of the actual controller was inconsistent with the disclosure of Yitai Coal's information. The company stated that it had no actual controller, because Yitai Investment, the controlling shareholder of Yitai Group, had no actual controller. However, the actual controller disclosed by Yitai Coal B shares under Yitai Group is Yitai Investment, and the actual controllers disclosed by H shares are 2,312 natural persons.

The various "flaws" in the declaration process are also responsible for the sponsor's negligence in verifying the omissions, and they were hastily withdrawn after a round of inquiries, which also reveals the lack of confidence of the enterprise to a certain extent.

There is no shortage of problems in the projects that have passed the meeting. In Hanshow's IPO project, CICC, as the sponsor, indirectly held 4.31% of the shares, and its professional independence was questioned by regulators. In this regard, the regulator also pointed out in the inquiry that the intermediary did not strictly follow the relevant requirements to verify the shareholder information.

However, in the A-share market, CICC's Hong Kong subsidiary, China International Capital Corporation Hong Kong Securities Limited (CICC Hong Kong), has performed well, despite the high withdrawal rate of CICC and many development problems. Wind data shows that CICC Hong Kong's IPO equity business ranked first in terms of underwriting scale during the year, raising HK$3.053 billion and accounting for 35.31% of the market share, more than 20 percentage points higher than the second place in the market.

(Image source: Wind data)

In 2023, the number of IPO sponsorships of CICC Hong Kong stocks will reach 24, accounting for 16.39% of the market share, which is also the highest among Hong Kong stock investment banks.

(Image source: Wind data)

Under the current tightening of A-share IPO supervision and the slowdown in the pace, the Hong Kong stock market is also a good outlet for CICC. (Blue Whale News, Wang Wanying, wangwanying@lanjinger)