Moscow Exchange Lost Chinese Accent

Yesterday, Chinese Chengdong Investment Corporation (CIC) fund sold all its shares of the Moscow Exchange. With this investment the fund lost 27% in currency terms. Last autumn, with even greater loss the fund left Uralkali. The reason why CIC left the capital of the Exchange may be related to the changed fund's investment policy or to a globally deteriorating situation in the economies of the two countries.

According to Bloomberg, yesterday Chinese Chengdong Investment Corporation (CIC) fund sold its stake (5.2%) of the Moscow Exchange. The placement was organized by Goldman Sachs. In the course of the transaction, 119.1 million shares of the Exchange were sold for 89 rubles per share, which is 11% below the closing price on Wednesday. ‘Such transactions must have a discount. Due to the speed of sale of the package, due to its size, it could hardly be otherwise,’ said Uralsib Analyst Natalya Berezina. According to Interfax, the cost of the sold package in currency terms and considering the dividends was 27% below the purchase price.

According to TASS, the main buyers of the ‘Chinese package’ have become investors from the UK (47%) and the USA (36%), the rest of the investors were from continental Europe and Asia. The proportion of strategic investors accounted for 54% of the package buyers, hedge funds bought about 46%. ‘As a result of the transaction the proportion of the Exchange's shares in free float has reached 57%, which is the highest indicator among Russian public companies. The increase in the number of shares in free float assumes an even more differentiated investor base, the further growth of shares liquidity and an increase in weight of our securities in the stock indices,’ said at the end of the transaction the Chairman of Board of Moscow Exchange, Alexander Afanasyev.

On December 31, 2015, the proportion of CIC's shares of the Moscow Exchange was 5.578%. Part of the package (4,24%) CIC acquired in December 2012 from Gazprombank, which completely left the capital of the Exchange. In March 2013, during the Moscow Exchange IPO, the share of the Chinese fund was increased to 5.384%. In addition, CIC owns a small stake in the Exchange through a joint Russia-China Investment Fund (RCIF), created by the Russian Direct Investment Fund (RDIF) and CIC. RDIF reported that its package and RCIF's stake in the capital of the Moscow Exchange remain unchanged. The fund does not disclose CIC's stake in Exchange shares purchased through RCIF.

A small part of the package (about 0,4%) CIC implemented in 4Q of 2015. In addition, last autumn the fund also completely left the capital of Russian ‘Uralkali’, by selling a share of 12.5% (for $1.17 billion, with a loss of $0.8 billion of previously invested funds, see ‘Kommersant’ on September 29). ‘Their presence in the Russian market also reduced a number of Chinese banks. Maybe it is a general trend associated with a fall of the Russian economy, as well as with China's domestic economic problems,’ says Director of Methodological Department at National Rating Agency, Maxim Vasin. Last summer in the Chinese stock market was the strongest – since 2008 – crisis, which culminated in a nearly twofold decrease in the Shanghai Composite index. To stabilize the situation, the People's Bank of China lowered the requirements for banks, as well as made a major foreign exchange intervention intended to reassure investors and ease the negative sentiment. However, it did not stop the decline in the market for long. Since the beginning of 2016 Shanghai Composite fell by 22% and rolled to the values of December 2014. The People's Bank of China continued to inject liquidity into the financial system of the country with hundreds of billions of yuan. Comments from CIC could not be obtained.

Kommersant, 05/02/2016