China creates $230 bln brokerage powerhouse as sector consolidates
Guotai Junan to acquire smaller rival Haitong via share swap
Shares of China brokerages jump on hope of more mergers
Beijing has dialled up rhetoric on domestic brokerage mergers
Analysts say more brokerage mergers expected amid tough markets
Adds comment from analyst in paragraph 6, industry slowdown and context in paragraph 18-20, updates share prices
By Selena Li, Samuel Shen and Julie Zhu
HONG KONG, Sept 6 (Reuters) -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 601211.SS is set to acquire its cross-town rival Haitong Securities 600837.SS 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 600030.SS as China's largest brokerage. Trading in shares of Guotai Junan and Haitong was suspended on Friday.
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.
China's securities regulator said in March that it aimed to develop about 10 leading institutions in about five years, with two to three internationally competitive investment banks and institutions by 2035.
Beijing's ambition to create large, competitive investment banks comes a few years after a slew of global banks, including Goldman Sachs GS.N and Morgan Stanley MS.N, took full control of China businesses eyeing bigger market share.
There have been announcements about mergers between six pairs of smaller brokerages since end-2023, including, according to official Shanghai Securities News, the merger of Ping An Securities 601318.SS and Founder Securities 601901.SS.
PREVENTING RISK
The deal would fuel market expectations of more mergers including potential deals between CICC 601995.SS and Galaxy Securities 601881.SS, according to Xu Kang, an analyst at Hua Chuang securities.
Other possible mergers include a combination of Citic Securities and China Securities 601066.SS, Xu said.
Spokespersons for CICC, Galaxy Securities, Citic Securities, and China Securities did not immediately respond to Reuters requests for comment.
Shares of Chinese brokerages jumped on Friday on the merger news. An index tracking China-listed brokerages .CSI399975 gained as much as 2.6%, while the CSSW Securities Index .CSI399707 rose as much as 2.2%.
Shanghai-listed shares of CICC leapt as much as 8%, while Galaxy Securities rose as much as 10% to a two-month high. In comparison, the blue-chip CSI300 Index .CSI300 fell 0.5% to a seven-month low in the late afternoon trade.
Market volatility and dwindling initial public offerings and other capital market deals in a slowing economy have been weighing on the sector's earnings, with the performance of the smaller brokerages, in particular, taking a big hit.
Haitong, for example, suffered from quarters of plunging profits, loss-making international business, and scandals that included a top investment banker at the firm fleeing overseas before being arrested due to suspected job-related crime.
China's 43 listed brokerages saw their first-half revenue shrink 16%, with net profit slumping more than one fifth during the same period compared with a year ago, according to a research note from Guolian Securities.
In April, the State Council issued a guideline highlighting the need to strengthen regulation, prevent risks and promote the development of the capital market. It also encouraged leading securities and futures firms to enhance competitiveness through M&As, restructuring, and other means.
The latest merger could send a positive signal to the market that the "supply-side reform" in the sector was about to take place due to challenging market cycles and a tightened regulatory landscape, Morgan Stanley said in a research note.
"In the near term, we believe the announced deal could revive some investor interest in broker stocks generally, especially those with potential M&A stories," analysts at Morgan Stanley wrote.
($1 = 7.0921 Chinese yuan)
Reporting by Selena Li, Samuel Shen and Julie Zhu; additional reporting by Xie Yu; Editing by Sumeet Chatterjee and Stephen Coates
免责声明: XM Group仅提供在线交易平台的执行服务和访问权限，并允许个人查看和/或使用网站或网站所提供的内容，但无意进行任何更改或扩展，也不会更改或扩展其服务和访问权限。所有访问和使用权限，将受下列条款与条例约束：(i) 条款与条例；(ii) 风险提示；以及(iii) 完整免责声明。请注意，网站所提供的所有讯息，仅限一般资讯用途。此外，XM所有在线交易平台的内容并不构成，也不能被用于任何未经授权的金融市场交易邀约和/或邀请。金融市场交易对于您的投资资本含有重大风险。
所有在线交易平台所发布的资料，仅适用于教育/资讯类用途，不包含也不应被视为用于金融、投资税或交易相关咨询和建议，或是交易价格纪录，或是任何金融商品或非应邀途径的金融相关优惠的交易邀约或邀请。
本网站上由XM和第三方供应商所提供的所有内容，包括意见、新闻、研究、分析、价格、其他资讯和第三方网站链接，皆保持不变，并作为一般市场评论所提供，而非投资性建议。所有在线交易平台所发布的资料，仅适用于教育/资讯类用途，不包含也不应被视为适用于金融、投资税或交易相关咨询和建议，或是交易价格纪录，或是任何金融商品或非应邀途径的金融相关优惠的交易邀约或邀请。请确保您已阅读并完全理解，XM非独立投资研究提示和风险提示相关资讯，更多详情请点击 这里。
