Tencent enters old-school finance with stake in China's CICC

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Tencent Holdings Ltd., China’s largest social media firm, is entering the traditional finance industry by investing in CICC International Capital Corp., a move that may help the investment bank’s expansion in wealth management.

Shares of CICC jumped by a record after it said Tencent is paying HK$2.9 billion ($372 million) for roughly 5 percent of China’s oldest investment bank. The companies will team up on marketing and data analysis, according to an exchange filing.

CICC, once dubbed the Goldman Sachs of China after it brought some of the country’s largest state-run firms to market, has been reducing its dependence on volatile investment banking fees and expanding its business catering to rich individuals. It completed a $2.5 billion purchase of China Investment Securities Co. this year, plunging into the retail investor market.

“Investors are buying into the fintech concept,” said Chi Man Wong, a Hong Kong-based analyst at China Galaxy Securities Co. CICC gained wealthy clients through the acquisition of China Investment, and Tencent’s investment “gives the firm lots of room to play with big data and financial technology. The whole strategy is consistent.”

Tencent, which operates the popular WeChat social media service, is buying 207.5 million new Hong Kong-listed shares for HK$13.80 apiece, CICC said. That’s an 11 percent discount to CICC’s Wednesday closing price in Hong Kong, and translates into about 4.95 percent of its total shares once new stock is issued.

Shares of CICC surged as much as 19 percent to HK$18.48 and traded 16 percent higher at 11:59 a.m. in Hong Kong. Tencent was little changed.

Cooperation with Tencent in areas such as precision marketing and big-data analysis “will enable the company to enlarge its customer base and provide more personalized and diversified wealth management products and services for customers,” CICC said.

Set up in 1995, CICC was part-owned by New York-based Morgan Stanley until 2010. Its shares were listed in Hong Kong in 2015. The brokerage reported a 46 percent jump in wealth management revenue in the first half, while investment banking sales remained flat.

Tencent gets most of its revenue from gaming but has ramped up its investments in finance, seeking to displace Jack Ma’s Ant Financial’s dominance in mobile payments as well as money management. Other internet firms from JD.com Inc. to Baidu Inc. have set up online finance operations, hoping to up-end an industry controlled by state banks that have traditionally favored large government enterprises at the expense of smaller private firms.

Tencent’s online finance business remains nascent and includes a stake in online lender WeBank. Its payments business, which competes directly with Ant’s Alipay, grew by triple-digits in its latest quarter, President Martin Lau told analysts on a conference call.

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