Sun Hung Kai in $4b buyout of UA Finance
Brokerage will also set up venture with China's second-largest futures broker
Sun Hung Kai Financial will pay more than $4 billion to buy out the entire 50 per cent stake of privately held United Asia Finance from its parent firm Allied Group as part of its strategy to enter the mainland securities market, sources familiar with the deal said.
Besides this deal, Sun Hung Kai - the largest and oldest local brokerage firm with a market share of more than 10 per cent - today will sign an agreement with China's second-largest futures broker, Zhejiang Yongan Futures Brokerage, to set up a 25-75 joint venture, China Xin Yongan Futures, in Hong Kong with the mainland firm taking the larger stake.
The deal will be the first to allow a mainland futures broker into the Hong Kong market.
'Both deals are significant steps for Sun Hung Kai Financial to expand into the mainland market, which will be the future growth area of the Hong Kong brokerage industry,' a source said yesterday.
Brokers in Hong Kong face fierce competition from banks, which offer low commission fees to attract clients, forcing smaller outfits to the wall while larger brokerages such as Sun Hung Kai, Tai Fook Group and Christfund Securities have had to expand into China to seek new opportunities.
The source said Sun Hung Kai would pay more than $1 billion in cash and the rest in the form of deferred debt papers to Allied Group for 50 per cent of United Asia Finance, a licensed money lender focused on personal finance. The deal will increase Sun Hung Kai's stake in UA Finance from 8 per cent to 58 per cent while its other Japanese owners will retain their stakes.
The purchase is a connected transaction and will need independent shareholder approval as Allied Group controls Allied Properties, which is a majority shareholder of Sun Hung Kai.
All three companies were suspended from trading on Wednesday pending the announcement of the deal.
'The acquisition forms an important part of the expansion plans of Sun Hung Kai to boost its capital and services to enter the China market. The Hong Kong market is small and mature and China is now opening up. Sun Hung Kai has to prepare itself to ensure it has enough services and capital to be qualified to enter the China market,' the source said.
Under the Closer Economic Partnership Arrangement, mainland futures brokers will be able to set up in Hong Kong while local futures brokers will be able to invest up to 49 per cent in a mainland futures brokerage. The China Securities Regulatory Commission in April gave approval to Yongan Futures, China International Futures and Green Futures to set up businesses in Hong Kong.
China Xin Yongan Futures, with an initial capital of $10 million, will service the mainland firm's overseas operations, trading derivative products in Hong Kong and international markets.
Later, when China releases details of the qualified domestic institutional investors scheme, it would apply to help mainland investors trade futures contracts, the source said.