Jianyin acquires collapsed brokerage

PUBLISHED : Tuesday, 02 August, 2005, 12:00am
UPDATED : Tuesday, 02 August, 2005, 12:00am

PBOC unit to revive China Southern Securities by taking over its investment bank and all 74 branches

China Jianyin Investment, the investment arm of the mainland's central bank, says it will take control of China Southern Securities in hopes of reviving the bankrupt brokerage.

China Southern, the country's fifth-largest securities house, collapsed in January last year and was taken over by the China Securities Regulatory Commission, the first in a string of closures and government acquisitions that have rocked the industry.

'This is the first brokerage acquired by [China Jianyin Investment] but there will be more to come,' said Xu Gang, Citic Securities head of research.

A China Southern spokesman said he was only aware of the news from state media reports.

'They went bust because they took positions when stocks were going down and that was complicated by mixing of clients' funds,' said Bruce Richardson, head of research at Evolution Securities.

China Southern was set up in 1992 at the inception of the mainland's capital markets and was a typical operator in an industry notorious for embezzlement, insider trading and mismanagement of client funds.

The 120-odd brokerages posted combined losses of 15 billion yuan last year.

Jianyin will take over China Southern's investment banking unit and all 74 branches. It will be also responsible for repaying the company's eight billion yuan debt to the central bank.

The company will be renamed Jianyin Securities, according to state media reports.

Jianyin was set up by the People's Bank of China (PBOC) as a holding company to take ownership of China International Capital Corp (CICC), the country's first Sino-foreign joint venture investment bank.

US investment bank Morgan Stanley is the main foreign shareholder.

'China Construction Bank (CCB) used to be the largest shareholder of CICC, but now that it is going public, it is not proper for CCB to own CICC,' said Chen Zizuo, head of international development at the Shanghai Stock Exchange.

Central Huijin, the wholly state-owned investment company established to manage the government's equity investments in China's major financial institutions, is the sole owner of Jianyin.

The Shanghai Composite Index was the world's worst-performing major index last year and has continued to slump as Beijing pushes ahead with reforms aimed at resolving the issue of non-tradable state-owned shares, a throwback to the centrally planned economy.

Brokerages have also been hit by an unofficial suspension of initial public offerings and new share issuances that has cut off income from underwriting services.

Since state-share reforms began in April, Beijing has announced new measures to boost markets and reform brokerages on almost a weekly basis.

These include bailout loans to better performing brokers such as Shenyin Wanguo and Huaan Securities and a rumoured 10 billion yuan cash infusion into China Galaxy Securities.

Outright bankruptcy is uncommon in a country that is yet to ratify its first true bankruptcy law.

'The government finds it very difficult to close down these brokerages because of the complicated ownership structure and wide-ranging customer base,' said Mr Richardson.

Some officials even voice concern that widespread brokerage closures in the industry could lead to social unrest.