Citigroup Inc.’s (C - Analyst Report) securities joint venture (JV) in China with Shanghai-based Orient Securities Co. has received a regulatory nod and with this Citi inches closer to increasing its foothold in the territory.
On Wednesday, Citi and Orient announced that China Securities Regulatory Commission have granted them the permission to form the JV, which will be named Citi Orient Securities Co. The JV will carry on investment banking activities including securities underwriting and sponsoring. This partnership was announced in June last year, and it is expected to be fully operational by mid-2012.
According to the terms of the agreement, Orient Securities will have a 66.7% stake in the JV and the remaining 33.3% will be held by Citi. This is the maximum permissible holding for a foreign entity according to the Chinese law.
In an effort to explore the thriving economy and a booming capital market, U.S. and U.K. banks are making efforts to set up JVs in China. With this, Citi joins the bandwagon of banks, such as J.P. Morgan Chase & Co. (JPM - Analyst Report), Goldman Sachs Group Inc. (GS - Analyst Report), UBS AG (UBS - Analyst Report) and Deutsche Bank AG (DB - Analyst Report) to have set up such JVs in China.
The JV in China is a strategic fit for Citi as the company is aiming to grow its business in international markets and particularly in the emerging economies. Going forward, we believe that such strategic partnerships will enhance Citi’s global network and boost its revenue base by leveraging on faster-growing economies like China, thereby increasing its market share internationally.
Citi currently retains its Zacks #3 Rank, which translates into a short-term Hold rating.