Money

Share sales would unshackle ChinaAMC

By Karen Yip and Li Xiang (China Daily)
Updated: 2011-07-07 14:35

In January 2010, the China Securities Regulatory Commission barred China Asset Management Co from launching new products.[Photo / China Daily]

BEIJING - Any success Citic Securities Co has in disposing of its 51 percent stake in fund management company China Asset Management Co (ChinaAMC) will clear the way for the latter to make a strong comeback from its nearly two-year ban from offering new products, analysts say.

On Tuesday, Citic Securities put five stakes - four 10 percent tranches and one 11 percent - in ChinaAMC up for sale. Four of these will be sold to State-owned enterprises and the fifth is open to private companies in China or foreign asset managers qualified under China's fund law.

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The 10 percent stakes cost 1.6 billion yuan ($250 million) each and the 11 percent stake is going for 1.76 billion yuan.

"The stake sale certainly is positive news for ChinaAMC and the domestic fund industry," said Liu Mingjun, a fund analyst at Cinda Securities Co Ltd.

"Once the ban on its launching new products is rescinded, ChinaAMC is likely to see additional revenues of more than 10 billion yuan annually from management fees of new funds. And it will boost the issuance of new funds of its competitors in the industry," he said.

Launching new products is an important strategy that fund management companies use to fight decay in assets under management. "Once the stake sale is completed, ChinaAMC will be able to launch new products. Large firms such as theirs usually have strong distribution and marketing units to take on the competition," said Anthony Skriba, project manager from research house Z-Ben Advisors in Shanghai.

In January 2010, the China Securities Regulatory Commission (CSRC) barred ChinaAMC, the country's largest fund management company by market share, from launching new products.

The restriction was imposed because ChinaAMC's parent, CITIC Securities Co Ltd, failed to comply with domestic equity-ownership regulations by reducing its shareholding in company from 100 percent to 49 percent.

Last year, was especially problematic for ChinaAMC because the CSRC opened additional product launch channels and allowed fund management companies to launch multiple products simultaneously.

Competitors such as Harvest Fund Management Co Ltd and E Fund Management Co launched new equity funds and more new products are in the pipeline.

"Even fighting with one hand tied behind its back, ChinaAMC has performed reasonably well. Dividends and strong performance were used to encourage their clients to remain with them," Skriba said.

Issuing dividends of 27.66 billion yuan in 2010, ChinaAMC has been one of the best asset retention firms in the fund management industry.

The equities market may encourage fund management companies to introduce equity products instead of the current trend of launching fixed-income products to the public.

The net worth of the Chinese fund industry exceeded 2.52 trillion yuan by the end of 2010, and the fund shares amounted to 2.42 trillion yuan, according to the statistics from China Galaxy Securities Co, based in Beijing.

In terms of the size of assets under management, ChinaAMC stood at No 1, with 224.71 billion yuan, and Harvest Fund Management as No 2, with 160.30 billion yuan.