• Yangzijiang Financial Holding (YZJFH), the investment arm spin-off from Yangzijiang Shipbuilding, seeks to reposition its investment strategy to diversify exposure and credit risk and enter into the fund/wealth management business to generate recurring fee-based income.
   
• Management believes the spin-off will bring benefits such as unlocking value of both entities, enabling focus on respective core businesses, creating investment flexibility for shareholders and financial independence for YZJFH, with direct access to capital markets.
   
• Intends to recommend and distribute dividends of not less than 30.0% of net profit after tax to equity holders of the Company (excl. non-recurring, one-off and exceptional items) for the next three FYs – FY22/23/24, to reward shareholders for participating in their growth.

Yangzijiang Financial Holding (YZJFH) is the investment arm being spun off from Yangzijiang Shipbuilding (YZJSB). With an initial net tangible asset of RMB20.0 billion (c.S$4.25 billion), YZJFH has its principal business which comprises of i). Investment Management Business and ii). Debt Investment Business. YZJFH will be operated independently, with its own business direction and identity to pursue its growth and strategic opportunities.

YZJSB believes spinning off its investment arm will bring benefits by:

• Unlocking value of remaining Group and spin-off through separate valuations
• Enabling management to focus on the Groups’ respective core businesses
• Creating investment flexibility for shareholders
• Establishing YZJFH’s financial independence, with direct access to capital markets
   

In a recent interview with The Business Times, YZJFH disclosed that it presently has 60% of its portfolio in private credit, 20% in private equity and funds and another 20% in cash – all in China. To diversify risks across geographies and asset classes, as well as increase product offerings, its bondholding will be reduced to 30%, private equity and fundholding will rise to 40%, while offshore investment will increase from zero to 20% by 2023.

YZJFH is also targeting a ROE of 8-10%, generating income from 2 areas – fee income from fund/wealth management and investment returns. Sectors the company will target include high-technology, healthcare, ESG, and cleantech. YZJFH also aims to attract S$1 billion in third-party capital in a year’s time.

Highlights from YZJFH’s introductory document

Repositioning strategy to diversify exposure and credit risk

YZJFH intends to reposition its Debt Investment business to focus on Fund Investments, with a view to generate sustainable long-term returns. As such, management believes Debt Investment revenue will reduce with a corresponding increase in the Investment Management segment.

A portion of the recycled capital will also be deployed into a newly established offshore Investment Management business in Singapore. Management is of the view that this repositioning strategy will help diversify exposure and credit risk arising from microfinancing and entrusted loans into different asset classes and geographies.

Entering into the Fund/Wealth Management Business to generate recurring fee-based income

YZJFH intends to acquire GEM, a Singapore-based asset management firm which provides asset management and family incubation services, including providing and managing an efficient and private investment platform through establishment of variable capital companies (VCC). The firm has an extensive private banking network and has provided investment management and advisory for assets of >US$2.4 billion since establishment. YZJFH intends to proceed with the completion of the GEM acquisition after the listing. Refer to page 152 of introductory document for more details.
 

1. YZJFH Principal Business

• Investment Management Business
  1. Seeks capital appreciation and investment income from both public and private company investments
  2. Deploying funds into various situations
• Debt Investment Business
  1. Generate predictive income while ensuring adequate financial liquidity for projected growth
  2. Invest excess cash into short-term entrusted loans to achieve investment objective
  3. Business will be repositioned to focus on Fund Investments to generate sustainable long-term returns
  4. Bulk of investments (at amortised costs) expected to mature by 31 Dec ‘23

2. Competitive Strengths (page 143 of introductory document)

• Leading Investment Management and Debt Investment Businesses in Asia, in terms of Group’s total AUM size and/or expected market capitalization, as compared to other publicly-listed investment management firms in Asia.
• Strong investment capacity with deep proprietary capital pool
• An active portfolio management to deliver attractive risk-adjusted returns
• Strong leadership and a deep bench of investment professionals
• Ability to attract global talent
• Broad and deep strategic relationships in Greater China and Southeast Asia regions
   

3. Business Strategies and Future Plans (page 148 of introductory document)

• Become a leading investment manager in Asia, focusing on long-term value creation
• Seek to create diversified portfolio with an investment focus on growth opportunities to achieve an attractive risk-adjusted return, while providing steady stream of dividends to shareholders through income generated from Investment Management business, and proposed Fund/Wealth Management Business (in the future).
• Continue to grow investment portfolio in China
• Extend investment footprint into Singapore by partnering prominent fund management firms to launch co-GP Funds, taking into consideration various factors (e.g. scale, scope, and quality of service/product offerings etc)
• Diversify into fast-growing sectors and new asset classes
• Acquire new Fund/Wealth Management capabilities to distribute investment products (incl. own-GP Funds) and generate recurring fee-based income

4. Rationale for spin-off

YZJSB’s Board is of the view the spin-off will bring tangible economic benefits that are substantial, quantifiable and clearly achievable to shareholders for the following reasons:

• Unlocking value through separate valuation. Investment community can better appraise value of underlying businesses and assets of each group, allowing for such value to be better reflected.
• Enabling management’s focus on groups’ core businesses. Both sets of management will have greater autonomy to better focus attention and resources on their respective core businesses and oversee strategies, growth, operations of each group more effectively without the constraints of a conglomerate structure.
• Creating investment flexibility for shareholders. Shareholders can individually and directly participate in the ownership of, and enjoy returns from, shares held in two separately listed companies without any additional cash outlay. They will also have discretion and flexibility to separately decide their holdings in these two listed companies.
• Establishing financial independence, with direct access to capital markets for YZJFH. As YZJFH’s business is capital intensive, the spin-off will allow the company to greater corporate visibility and be better able to independently and directly access capital market. The remaining group (YZJSB) can also redeploy financial and other resources to Shipbuilding and Shipping business (in particular its ESG initiatives).
   

5. Key Risks Factors (refer to 34 for a complete list of risk factors)

• Investment management business is subject to intense competition
• Loss of key senior management members may affect continuing ability to compete
• Business is dependent on reputation
• Exposed to growth and expansion risks, as well as risks with past/ongoing/future acquisitions, JVs and strategic partnerships
• May not be able to successfully implement business strategies and future plans

Debt Investment Portfolio Overview and Historical Track Record

Financials

• Initial net tangible assets of RMB20.0 billion (or c.S$4.25 billion). Deployment of about RMB5.0 billion (c.S$1.0 billion) of proprietary capital into offshore investments by end of FY22.
• Dividend income from investments increased 457.0% YoY to S$78.4 million for FY2021 while investment interest income declined 11.3% YoY to S$368.7 million.
• Management expects an increase in the sources of its dividend income, which will sufficiently offset the decline in interest income with the repositioning of the Debt Investment business.
• Its Board intends to recommend and distribute dividends of not less than 30.0% of net profit after tax to equity holders of the Company (excl. non-recurring, one-off and exceptional items) for the next three FYs – FY22/23/24, to reward shareholders to participate in their growth.
   

Additional Information from Offer Document

Other Details

• Entitled YZJSB’s shareholders to receive YZJFH shares based on a 1-for-1 dividend in specie
• Estimated aggregate of 3.95 billion shares (illustrative purposes and based on introductory document)
• Estimated market capitalisation of S$4.2 billion