UBS Sees China Share Sales Decreasing Further as Economy Slows
The pace of share sales in China will slow as an economic deceleration damps companies’ efforts to expand, said David Li, head of UBS AG (UBSN)’s operations in the country.
Share sales in the world’s second-largest economy have dropped to 119.5 billion yuan ($19 billion) so far this year, compared with 251.9 billion yuan in the same period of 2011, according to data compiled by Bloomberg.
“Activity will slow because some companies may need to reduce the scale of their expansion given slower economic growth,” Li said in an interview yesterday in Tianjin, China, where he is attending the World Economic Forum. Average deal size is also decreasing because most large companies that plan to hold initial public offerings have already done so, he said.
Two interest-rate cuts this year, three reductions in banks’ reserve requirements since November and accelerated approvals for investment projects haven’t been enough to reverse a slowdown in the economy, which decelerated for a sixth straight quarter in the three months ended June 30. Output grew 7.6 percent in the second quarter, the slowest pace since 2009.
UBS is constantly “filling up” its team in China, where finding talent is still a challenge, Li said. Switzerland’s largest lender got more than 13 percent of revenue from the Asia-Pacific region last year. The Zurich-based bank employed about 7,600 people in the region as of June 30, according to data compiled by Bloomberg.
UBS gained access to underwriting, trading and advisory businesses in China in 2006 when it bought a 20 percent stake and management control of UBS Securities Co. The unit is a venture with Beijing Guoxiang Property Management Co., which owns 33 percent. Central Huijin Investment Ltd., a unit of sovereign wealth fund China Investment Corp., Guodian Capital Holding Co. and COFCO Corp. each own 14 percent.
UBS is the top-ranked underwriter of overseas first-time share sales by Chinese companies this year, having handled four offerings, all in Hong Kong, for a combined $318 million, according to data compiled by Bloomberg. Such deals this year total $2.12 billion and fell 67 percent to $10.9 billion in 2011 from a year earlier, the data show.
Cross-border acquisitions may increase as Chinese companies grow, Li said.
“When companies grow to a certain stage, strategically they need to build their distribution channels or brands, they can do so via” acquisitions, he said. “And many companies actually prefer cross-border deals” to acquire assets that aren’t available at home.
UBS Securities employs more than 400 people and posted revenue of 959 million yuan ($151 million) in 2011 compared with 880 million yuan a year earlier, according to its annual report. Net income fell 15 percent last year to 46.95 million yuan.
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