Alibaba Should Show Its Hand in CICC Poker Game With Tencent

(Bloomberg Opinion) -- It’s time for Alibaba Group Holding Ltd. to declare its hand.

After holding just less than a 5 percent stake in Beijing-based investment bank China International Capital Corp., the e-commerce giant bought a further 117 million H shares on Feb. 14, more than doubling its stake to 11.7 percent of that class.  That turns CICC from a passing interest into a targeted investment. 

Muddying the waters is the fact that Tencent Holdings Ltd. holds a similar stake after CICC issued new shares to the Shenzhen-based social media company in March last year. 

It’s not so unusual that the compatriots-cum-rivals hold shares in the same company, but Alibaba’s stock purchase looks like an escalation. It’s worth noting that Alibaba’s name didn’t appear on the list of substantial shareholders in CICC’s filing for the period ending Sept. 30, 2018.

Adding further intrigue is the revelation Wednesday morning that GIC Private sold 117 million shares at the same time and price as Alibaba bought. A massive pre-open trade on Feb. 15 for that same amount indicates that GIC sold to Alibaba in a prearranged deal, cutting the Singapore sovereign wealth fund’s stake to less than 1 percent.

In summary: Tencent took a significant stake in CICC a year ago when the company issued new shares. Alibaba got to the same position by buying shares from a departing shareholder.

As Bloomberg Intelligence senior analyst Sharnie Wong puts it:

“Alibaba and Tencent could continue to battle for greater influence on CICC, as both see strategic value in China's leading investment bank.”

No matter how they got there, that’s the key point: strategic value. 

CICC earned a reputation for being the Goldman Sachs of China after leading a string of state-owned enterprises to IPO. Now investment management profit has overtaken that of wealth management, putting the division on par with investment banking itself, according to 2017 data.

This indicates that Alibaba and Tencent may be less interested in gaining a seat on the board of an investment bank than focusing on asset management. It’s worth remembering that CICC also has a budding private equity business, CICC Capital, which according to its 2017 annual report has “a wide spectrum of businesses covering government venture capital funds, stock economic reform funds, U.S. fund of funds, U.S. equity investment funds, RMB equity investment funds and M&A funds.”

It may be no coincidence that Alibaba decided to go even deeper into CICC just a month after CICC Capital and TPG announced the formation of the China Synergy Platform  with a dual currency structure that allows it to target investments within and outside China. It could also be deliberate that this investment was made by Alibaba, not its fintech affiliate Ant Financial.

Both Tencent and Alibaba have made huge investments over the past few years, and have also built up their own fintech platforms to tap into Chinese consumers’ growing hunger for places to invest their cash.

Now that Alibaba has decided to up the rivalry with Tencent, it’s time for investors to be apprised of the company’s true intentions.

Hong Kongrules require a disclosure of 5 percent or more in any class of voting shares.

CICC shares include H-shares and domestic shares. Percentages and share stakes referenced here are for H-shares

TPG funds own around 10 percent of CICC's H-shares

To contact the editor responsible for this story: Rachel Rosenthal at rrosenthal21@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Tim Culpan is a Bloomberg Opinion columnist covering technology. He previously covered technology for Bloomberg News.

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