Mainland China broker Shenyin & Wanguo buys Hong Yuan for 40b yuan
Shenyin & Wanguo's takeover of Hong Yuan will create mainland's fifth-largest brokerage
Shenyin & Wanguo Securities is buying Hong Yuan Securities for 39.6 billion yuan (HK$49.8 billion) in stock to create the mainland's fifth-largest brokerage by assets.
Shenyin & Wanguo will issue 2.049 shares for each Hong Yuan share, the target company said in filings with the Shenzhen Stock Exchange. In total, the acquirer will issue 8.14 billion shares at 4.86 yuan each and plans to assume Hong Yuan's listing in Shenzhen, the filings said.
Mainland securities firms are seeking to bolster capital and market share through acquisitions and equity sales as profitability dwindles.
The Hong Yuan purchase is the biggest takeover in the mainland financial industry, surpassing Ping An Insurance's US$4.3 billion acquisition of Shenzhen Development Bank in 2011, data shows.
"Deals such as this one are what regulators and management like to see happen," said Chen Xingyu, a Shanghai-based analyst at Phillip Securities Research.
"Creating large firms through mergers and acquisitions will give these Chinese brokerages an edge when facing foreign competitors as China further liberalises its capital markets."
Total assets of the mainland's 115 securities firms - led in revenue by Citic Securities - climbed 20 per cent last year to US$334 billion, said the Securities Association of China. That is about a third of the US$912 billion at Goldman Sachs.
Shenyin & Wanguo and Hong Yuan had total assets of 91 billion yuan last year, Securities Association of China data shows.
Central Huijin Investment, the sovereign investor that holds stakes in China's biggest banks and other financial institutions, controls both Shenyin & Wanguo and Hong Yuan. The merger plan was part of Huijin's strategy to integrate its holdings in the companies, Shenyin & Wanguo chairman Li Jiange said in April.
Mainland brokerages, which make most of their money executing trading orders for individual investors, have seen profitability plunge to about an eighth of 2007 levels as trading commissions drop amid investors' disenchantment with equities.
Founder Securities, Credit Suisse Group's Chinese partner for an investment banking joint venture, this month won approval from the China Securities Regulatory Commission for its planned acquisition of smaller rival China Minzu Securities. The regulator had earlier approved Guotai Junan Securities' plan to purchase 51 per cent of Shanghai Securities for 3.57 billion yuan, Xinhua reported this month.
Guotai Junan is also among six securities firms awaiting approval for initial public offerings, according to filings posted on the regulator's website.
