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CITIC Group: A giant on the fast track

(China Daily)
Updated: 2008-08-08 09:36

Established in October 1979, CITIC Group was conceived and approved by Deng Xiaoping, the architect of China's reforms and opening up. As a window for China's opening up, CITIC Group played an important role in attracting and utilizing foreign capital as well as introducing advanced technologies.

CITIC has now grown into a large transnational conglomerate. It owns 44 subsidiaries, operating in China's mainland, Hong Kong, Macao, North America, Australia, South East Asia, Central Asia, Middle East, Africa and South America, with the core business ranging from the financial sector and industrial investment to service industries. By the end of 2007, CITIC Group's total assets stood at 1321.7 billion yuan and its net profit hit 16 billion yuan. CITIC Group played an important role in attracting and utilizing foreign capital as well as introducing advanced technologies.

Among the country's largest State-owned enterprises and listed big banks, CITIC Group ranks 14th in terms of revenue and profits after the provision for bad and doubtful debts. In the past five years, the group has maintained a compound annual growth rate of 22 percent in total assets and 74 percent in profits.

CITIC Group Chairman Kong Dan discusses the conglomerate's future strategy with China Daily reporters Tian Ying and Hu Yuanyuan in this exclusive interview. This is the first time Kong gave an exclusive interview after taking over in 2006.

Q: Two years have passed since you assumed the chairmanship of CITIC Group. What would you consider your major contribution in these past 24 months and what is your business strategy for the future?

A: After I took over, I have been thinking about how to maintain and promote the group's strong growth momentum. To keep our growth on track, we'll first have a strong and united team, and then formulate a correct strategic plan and business mode. We also need several flagship projects to promote our business adjustments. CITIC Bank's dual listing and acquisition of an oilfield in Kazakhstan for $1.9 billion are examples of such projects.

In April 2007, CITIC Bank made its debut in both Shanghai and Hong Kong bourses, raising 45 billion yuan. Thus it set a successful example of a State-owned enterprise completing the shareholding restructuring and public listing of its commercial bank mainly by its own efforts. Before that, the group injected 27.2 billion yuan into the bank from 2003 to 2006 and allowed it to choose the right time to get listed. Now we have more capital and energy to explore other businesses.

Our $1.9 billion investment in Karazhanbasmunai oilfield is also a key project as it was the group's first foray in the energy business. We have already and will further increase our investment in the energy and resources sector, such as petroleum, coal, iron ore, potash, manganese ore, uranium ore and other base metals. As of 2007-end, the total asset value of our resources and energy businesses hit 41.3 billion yuan, a jump of 144.1 percent over 2006.

Looking ahead, we would like to focus on our strength in providing comprehensive services and diversify our business portfolio. But that doesn't mean we will extend our business line for ever. Instead, we will tighten the line a bit by requiring our subsidiaries develop core competitiveness in their respective fields.

Q: CITIC Group has diversified a lot, its businesses ranging from banking to real estate and energy. The group used to focus largely on the financial business but now attaches much more importance to the non-financial sector. How do you balance the development of different thrust areas?

A: In our current business portfolio, financial businesses are still the main component as they account for 75.7 percent of the group's total assets, 49.9 percent of the revenue and 60.1 percent of the net profit. But our non-financial sector has caught up very quickly and generated 49.7 percent of the group's revenue and 31.2 percent of the net profit last year. We believe this proportion may grow further in the coming years.

As a more diversified business portfolio could help us better deal with the ups and downs of the economic cycle, we plan to strengthen our non-financial businesses, particularly in real estate, energy and resources, and overseas engineering contracting. We are also eyeing opportunities in digital TV and telecommunication sectors.

Q: What's your opinion on CITIC Group's financial health?

A: Our total assets reached 1.3 trillion yuan by the end of 2007, an increase of 42.55 percent over the previous year. Net profit jumped by 147 percent to 16 billion yuan. The return on average equity also climbed from 14.52 percent in 2006 to 21.61 percent in 2007. Meanwhile, our group's liability-asset ratio decreased from 93.4 percent to 89 percent on a consolidation basis last year. The ratio, without consolidating the accounts of subsidiaries, dropped from 59.2 percent to 43.6 percent in the same period.

Our main operating indicators, such as net assets and net profit, have met our goals set for 2010, three years ahead of the schedule.

Q: CITIC Group is one of the first State-owned enterprises to explore overseas opportunities. How's that going? CITIC Securities tried to acquire part of Bear Stearns this year but failed. What's your view on this and will you try similar mergers and acquisitions since a number of international financial institutions have been hit hard by the subprime crisis?

A: Our overseas business, not including those in Hong Kong, still occupies a small part of our overall business portfolio. But we will definitely increase this in the future, a trend which can be seen in our active participation in overseas engineering and contracting, such as the $7 billion deal in Algeria's highway and a $3.5 billion deal in Angola's residential building projects.

I don't believe CITIC Securities' efforts to acquire Bear Stearns was a failure though the deal was not finally inked because of many reasons. It demonstrates that CITIC Securities has financial and business capabliites to compete with the world's leading investment banks. Through the case, we expand our global vision and strategic thinking and also gained a good experience.

We'll still look at such M&A opportunities but so far we haven't begun any new negotiations. It is very hard to say if the subprime crisis has bottomed out or not.

Q: We have seen CITIC Group's efforts in privatizing CITIC International Financial Holdings (CIFH). Why did you initiate this move?

A: After privatizing CIFH, we will inject CIFH, including CITIC Ka Wah Bank into the mainland-based China CITIC Bank to form a unified commercial banking operation system within CITIC Group.

Following the trend of internationalization of CITIC Bank, the injection of CIFH into CITIC Bank can help the mainland bank tap into global opportunities through a unified brand. This is also part of our efforts to restructure our mainland and overseas financial platform.

Q: This year isn't easy for many enterprises because of the credit crunch, climbing inflation and economic uncertainties. What measures is CITIC Group taking to pull through? And, what is your expectation of the group's business this year?

A: To deal with these uncertainties, we have increased the liquidity within the group. On the one hand, we can better deal with the tighter cash flow, on the other, we will be able to seize the right merger and acquisition opportunities if we have enough cash on hand. In fact, improving liquidity has been the most urgent task for us.

Given our existing business structure, we are still confident we can maintain a compound annual growth rate of more than 15 percent in net profit from 2008 to 2010 despite the economic slowdown.

Q: We've seen a number of SOEs launched their IPOs in the past few years. Everbright Group, another major financial shareholding company, is also mulling over a listing plan. How about CITIC Group?

A: We have now 10 subsidiary companies listed on the stock exchanges. And the group will also tap the capital market at an appropriate time, in line with our business development and overall financial status.