Huijin to cash out of Galaxy
Daniel Ren in Shanghai
Central Huijin Investment plans to sell its stake in Galaxy Securities to China Investor Protection Fund in a government-orchestrated deal that will not generate a profit, Caijing reported yesterday on its website.
Beijing hopes to fatten the fund's account to better safeguard the interests of individual investors, as officials draw lessons from the market fallout seven years ago that cost individuals billions of yuan in losses.
Huijin, a government investment vehicle, was expected to transfer its 78.57 per cent stake in Galaxy Securities to the protection fund at a price that could be as low as its investment amount, the financial magazine said.
The deal will bring a huge windfall for the fund since the market value of Galaxy, which is likely to go public, could top 235 billion yuan.
'It will be a substantive step by regulators to protect small investors,' said Dazhong Insurance fund manager Wu Kan. 'Eventually, retail investors will be the beneficiaries of the move.'
In 2005, Huijin invested 5.5 billion yuan to overhaul Galaxy Securities.
The Beijing-based brokerage will make its initial public offering on the mainland if the China Securities Regulatory Commission exempts it from meeting the listing requirement of three straight years of profit.
Beijing set up the investor protection fund in 2005 and used the fund to take over failed securities firms to secure the brokerage account deposits of investors.
Many mainland brokerages suffered during the bear market between mid-2001 and 2005. Some companies were found to have misused their clients' deposits to bet on the volatile market.
Brokers are required to pay between 0.5 per cent and 5 per cent of their revenue to the investor protection fund.
In September 2006, the fund set up Essence Securities, which took over three troubled brokers to bail them out. Caijing said the fund was also planning to cash out of Essence Securities.