HONG KONG: The merger of two state-backed brokerages in China to create a sector leader with $230 billion in assets is part of Beijing’s drive to consolidate the $1.7-trillion industry amid challenging markets, and the move is set to gather pace, analysts said.
Shanghai-based Guotai Junan Securities is set to acquire its cross-town rival Haitong Securities via a share swap, the two companies said late on Thursday. The deal is subject to regulatory and shareholder approval.
The combined entity, with 1.6 trillion yuan ($226 billion) in total assets, will overtake Citic Securities as China’s largest brokerage. Trading in shares of Guotai Junan and Haitong was suspended on Friday.
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Both Haitong and Guotai Junan are controlled by companies running state assets for the Shanghai government.
Under the deal, Guotai Junan plans to issue new shares to investors in Haitong’s mainland China and Hong Kong listed entities. Guotai Junan will also issue new shares in the onshore market to raise funds for the deal, exchange filings showed.
“This marks the start of an industry-wide consolidation that will see more mergers between major brokerages,” said Huang Yan, fund manager of Shanghai QiuYang Capital Co, referring to the Guotai Junan-Haitong deal.
The consolidation focus will be on firms backed by state shareholders, Huatai Securities said in a research note.
Beijing has dialled up rhetoric about the need for reform in the brokerage sector, with new directives to encourage mergers and acquisitions and restructuring in an industry in which more than 140 Chinese and foreign players compete.
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