Keeping the bright light glowing

Asset investment guru Chen Shuang’s gamble has paid off. He tells the overseas unit of mainland conglomerate Everbright Group has now found itself synonymous with the trade.

Chen Shuang , chief e xec utive of Hong Kong-based C hina Everbright Ltd (CEL) — the overseas arm of Chinese mainland conglomerate China Everbright Group — has had his company’s unique features at his fingertips.

His strateg y has been to get the company shifted to asset management, and the approach has been progressing well under his stewardship for the past decade as its business model evolved over the years, having started off with brokerage and investment banking.

CEL itself is a market-oriented State-owned company that knows China well and is a polished brand to both foreign and domestic investors. Chen has steered the diversified financial group, which came into being in 1997 on the periphery of the city’s return to the motherland, into a flagship mainland-funded finance company that has been synonymous with direct investments, asset management, investment banking and brokerage services in China.

CEL is the subsidiar y of State-owned conglomerate Everbright Group — a pioneer in the country’s overseas investment program. Everbright Group’s history could be traced back to the 1980s when the central government launched an ambitious overseas investment drive with the emergence of two major groups — CITIC Group established in 1979 by Rong Yiren, former vice-president of the People’s Republic of China, and China Everbright Group which was founded in Hong Kong in 1983.

Chen notes that brokerage services have remained the major business of the mainland’s securities houses and are prone to volatility in the stock market, while investment banking is not highly profitable, with foreign investment banks dominating the Hong Kong market.

The evolvement saw CEL’s direct operating businesses — fund management and investment — shot up 509 percent year-on-year to HK$2.74 billion in 2016. But, due to a decline in returns for its two strategic investments — a 71-percent drop in profit share from Everbright Securities and 3 percent down from China Everbright Bank — CEL posted a 21-percent fall in profit attributable to shareholders of HK$4.07 billion compared with a year ago.

Strong appetite

Chen reveals that he has been trying to convince the group to sell off those two sectors, but no time frame has been set.

He s e e s o p p o r t u n i t i e s abound in cross-boundar y asset management.

“In 2008, China became t h e c e n t e r o f a tt e n t i o n i n the global economy as it was among the few countries that were mildly hit by the global financial crisis. The renminbi was on its upward track and the demand of foreign investors to invest in China surged. We saw the opportunity and touted the company as an expert in investments in China.”

Today, despite the renminbi’s depreciation, domestic investors’ appetite for overseas investment is strong , and Chen sees cross-boundary asset management and investment as holding great promise.

CEL manages a portfolio of private equity funds, venture capital funds, sec tor foc us funds, mezzanine funds, hedge funds and principal investment funds that invest in such fields as healthcare, manufacturing, aircraft leasing, real estate, technology, media, and telecommunications.

As of 2016, CEL had held 36 funds, 105 primary market post-investment management projects and 15 secondar y market portfolios. The fund management business’s total fundraising amount soared nearly 80 percent from 2015 to HK$87.5 billion.

Chen is confident that most of the invested projects have reached their expected rate of return, while some existing projects have been rewarded with excessive returns.

“In 2008, when we acquired the real estate private equity firm from Lehman Brothe r s , w h i c h i s t o d ay ’s E BA Investments, it only cost us $850,000. Last year, we sold a 51-percent stake to Jiabao Group for 1.5 billion yuan ($220 million),” Chen tells China Daily.

He b e l i e v e s E B A’s t o t a l returns would exceed 4 billion yuan in the event of a full exit.

Going with the trend

Chen’s investment philosophy is to “ride on the momentum rather than against it”, saying he’s not a short-term investor seeking overnight riches, but is carefully looking for sectors and assets that blend with the trend of society.

“Many private enterprises think they should invest in banks in secondar y markets. I wouldn’t recommend that because banking is on the downturn. As the countr y furthers its structural reform, banks are digesting a high level of bad loans, thus dampening their profits. Recent years have seen banks aggressively expand their off-balance sheet assets for profit, but the financial deleveraging and downsizing of balance sheets only serve to pile pressure on them,” he notes.

Some of his strategic investments, however, have been questioned in the first place. Last year, CEL completed the acquisition of a 100-percent stake in Tirana International

CAPITAL IDEAS: PETER LIANG

Airport in Albania.

“People asked me why I bought an airport in Albania, which is one of the most undeveloped countries in Europe. The fact is that Tirana is the only international airport in Albania and the return has been high and stable over the years. Chinese investors are craving for high returns from overseas assets. I find it’s very easy for me to complete the airport’s asset securitization.”

Looking ahead, aircraft leasing, investment in Israel and the issuance of dollar products in overseas markets will form just a fraction of Chen’s ambitions.

In retrospect, like many Chinese-funded finance houses, Chen said CEL was a small firm that “didn’t have the confidence to compete with foreign investment banks” when it set foot in Hong Kong in 1997.

As Hong Kong celebrates the 20th anniversary of the handover, Chen is glad to see many mainland finance firms going out and keeping pace with their overseas competitors. “We’re growing by leaps and bounds.”