Chinese tie-up will help RBS cash in on flotation surge

ROYAL Bank of Scotland launched a Chinese joint venture yesterday aimed at tapping into the world's biggest market for company flotations.

RBS Asia Pacific chief executive John McCormick said the bank was aiming for a bigger share of the pie in the booming Asian country, as other markets turned cool.

"You can see America and Europe have gone flat and you can see Asia increasing. We want to become a bigger part of the bigger pie," he said.

China is now the biggest market in the world for initial public offerings, with companies raising more than $70 billion (43bn) on its markets last year.

RBS said its Huaying Securities joint venture, based in the eastern city of Wuxi, near Shanghai, was licensed to underwrite and sponsor stocks and bonds issued in mainland China.

The Scottish bank owns one third of Huaying, the maximum level a foreign firm can hold in a Chinese brokerage business. Its local partner Guolian Securities owns the other two thirds.

McCormick said he expects Asia to account for one fifth of RBS' global wholesale and investment banking revenue in five years time, up from 14 per cent currently.

"We've got a wonderful farm. We have all the machinery in place, now we have to plough the land, sow the seeds, and let the harvest grow and reap the harvest," he said.

Asked about when the UK Treasury might begin selling its 83 per cent stake in RBS, McCormick said: "I suspect it will be in 2012." He added the move would depend on the bank's share price, reflecting previous guidance.

RBS was forced to offload its retail and commercial banking operation in China as a condition of state aid following its bail-out.

It transferred its retail banking business to Singapore's DBS Group last year without any money changing hands, but it has preserved its wholesale and corporate banking businesses in China, including a commercial lender, a trust venture and a futures brokerage venture.

Foreign players are rushing to get into the lucrative underwriting business in China.

Smaller Chinese investment banks, such as Shenzhen-based Ping An Securities and Guosen Securities, dominated the underwriting business last year after the launch of the country's Nasdaq-style Chinext market spurred a wave of IPOs.

But in January, the securities regulator approved the joint ventures of JP Morgan Chase and Morgan Stanley, enabling the two to underwrite stocks and bonds in the country - while other major European banks are also preparing joint ventures.

Meanwhile, RBS could lose some excess baggage with the flotation of luggage maker Samsonite in Hong Kong.The bank was lumbered with a 30 per cent stake in the firm following a restructuring of its debt to RBS.

Yesterday, Samsonite moved closer to a $1.5bn Hong Kong IPO, setting an indicative range for the deal. Samsonite will join companies such as L'Occitane and luxury brands such as Prada and Coach that have targeted Hong Kong to raise their profile among Asian consumers or tap deep-pocketed investors to fund expansion in the region.