On September 24, 2024, the China Banking and Insurance Regulatory Commission stated at a press conference that it will expand the pilot program for bank equity investment.

Subsequently, the notices on expanding the pilot program for financial asset management company equity investment and the scope of the pilot program were released.

Financial Asset Investment Company, referred to as financial AIC, is a non-bank financial institution established in China with the approval of the State Council's banking regulatory authority, mainly engaged in bank debt-to-equity swaps and related support services.

Recently, the pilot program for the equity investment of financial asset management companies was officially launched in Beijing, and the private equity investment industry has long called for and anticipated the "long-term capital" to accelerate entry into the market. It is understood that the financial asset investment company, also known as AIC, was originally established to resolve banks' non-performing assets and mitigate financial risks, with its business scope primarily focused on equity investment with debt-to-equity swaps as the main purpose.

As of now, China's five major banks, including Bank of China, Agricultural Bank, ICBC, China Construction Bank, and Bank of Communications, all have wholly-owned financial asset investment companies. However, prior to this, AIC's equity investment business was only piloted in a few regions, such as Shanghai.

Recently, at a symposium held by the Shenzhen Municipal Party Committee's Financial Office on the 'Active Implementation of the Bank AIC Equity Investment Expansion Pilot Work,' it was revealed that Shenzhen is actively collaborating with the five major banks' AIC institutions. Currently, the Shenzhen Luohu District Government and China Construction Bank Investment have reached an agreement on the establishment of Shenzhen's first financial AIC equity investment fund, with a planned total size of 10 billion yuan, focusing on key strategic emerging industries such as artificial intelligence, low-altitude economy, sse high-end equipment manufacturing 60 index, new generation electronics and information, green low-carbon, and new materials, leading the way in responding to the expansion of the pilot program.

China Securities Co.,Ltd. believes that AIC will become an important patient capital in the technology financial market.

On the one hand, leveraging its extensive customer base, large network, and comprehensive licensing resources, AIC provides comprehensive financial services for technology-based enterprises, including equity and debt.

On the other hand, AIC pays more attention to the industry value, growth potential, and technological innovation capabilities of enterprises.

China Securities Co.,Ltd. research reports believe that by providing long-term stable funding support and participating in corporate governance, high-quality stable operation can be achieved.

Non-bank financial institutions involved include:

China Cinda (01359): As of the end of June 2024, China Cinda's total assets amounted to 1.58 trillion yuan, with the asset size remaining stable. In the first half of the year, it achieved revenue of 35.076 billion yuan, a year-on-year increase of 2.27%. Net income attributable to the shareholders of the company was 2.156 billion yuan, a year-on-year decrease of 47%. In the first half of the year, it acquired 55.81 billion yuan in principal of financial non-performing debts, maintaining a leading advantage in the public market of bank non-performing assets. In terms of asset disposal, the net income from the acquisition of operating non-performing assets was 5.109 billion yuan, a year-on-year increase of 11.53%. In the reform of risks for small and medium-sized financial institutions, it acquired 30 billion yuan of non-performing debts from 43 local small and medium-sized banks in the first half of the year, entrusted to dispose of 10.7 billion yuan of non-performing assets of small and medium-sized banks; at the same time, it deeply participated in real estate risk resolution and protection projects, categorized measures to revitalize problematic projects, and helped build a new model for real estate development. In the first half of the year, 16 real estate risk resolution and protection projects were implemented, ensuring the on-time delivery of 0.017 million sets of commercial houses, driving the resumption of work and production of projects worth 33.7 billion yuan.

China Huarong (02799): In the first half of the year, the company achieved a net profit attributable to the parent company of 5.332 billion yuan, a significant increase of 210.7% year-on-year. This also conveys positive signals about the performance of China Huarong after successfully turning losses in 2023. After a billion yuan loss in 2020 and a difficult return to profit in 2021, China Huarong fell back into losses in the first half of 2022. For the full year of 2023, based on the provision of approximately 41 billion yuan for devaluation, the company achieved a net profit attributable to the parent company of 1.766 billion yuan, successfully reaching the established target of "returning to the right track within a year." In the first half of this year, as the core business and main source of income of China Huarong, the non-performing asset management division achieved a total revenue of 19.326 billion yuan, a 40.8% year-on-year decrease; the financial services division achieved a revenue of 3.162 billion yuan, a 6.8% year-on-year increase; the asset management and investment division achieved a revenue of 12.102 billion yuan, a significant increase of 925.9% year-on-year.