China Sets Up Largest Brokerage Firm

In order to compete with Wall Street firms, China has decided to create the country’s largest brokerage firm by merging Guotai Juan and Haitong Securities and the new firm is expected to have assets to the tune of $237 billion.

Guotai Junan plans to absorb Haitong in a stock swap, through which shares will be issued to holders of Haitong’s yuan-denominated A shares and Hong Kong-listed H shares, according to separate statements from the two companies. If combined, the new firm will surpass Citic Securities, whose assets are around $39 billion, as China’s biggest brokerage in both total and net assets.

Guotai Junan and Haitong are both owned by Shanghai’s state-owned asset administrator and the merger is pending approval from the companies’ boards and shareholders – as well as regulatory authorities – the companies said in their respective filings.

“A legally binding agreement has been entered into between the Company and Haitong Securities Co., Ltd., whose H shares are listed on the Main Board of the Hong Kong Stock Exchange, and whose A shares are listed on the Shanghai Stock Exchange to implement a merger by way of absorption and a share exchange by the Company issuing (a) A shares that are to be listed on the Shanghai Stock Exchange to holders of A shares of Haitong Securities that are listed on the Shanghai Stock Exchange; (b) H shares that are to be listed on the Main Board of the Hong Kong Stock Exchange to holders of H shares of Haitong Securities that are listed on the Main Board of the Hong Kong Stock Exchange, and a placement of new A shares of the Company for ancillary fundraising,” Guotai Juan said in its filing.

According to a report in South China Morning Post, the $1.69 trillion securities industry, which has 145 brokerages, is paying heed to Beijing’s call for nurturing home-grown world-class investment banks, and the high-profile merger is a major step in that direction. The goal for Chinese banks to compete on the global stage was outlined in a document issued in April by the State Council to bolster the stock market.

Consolidation is taking place among the securities firms in the medium-sized brokerages with Zheshang Securities, Guolian Securities and Guosen Securities so far unveiling plans to acquire smaller rivals.

Share Trading Halted

Shares of Guotai Junan and Haitong were both halted from trading on Friday in Shanghai and Hong Kong. The suspension is not expected to last more than 25 trading days, according to the statement. Guotai Junan rose 1.7% in Shanghai on Thursday, with the stock slipping 1.2% this year. Haitong added 3.8%, paring its decline for the year to 6.4%.

Guotai Junan and Haitong have combined net assets of 330 billion yuan, which would rank them No 1 in the industry, according to Huachuang Securities. In terms of combined revenue and profits, the merged entity would be placed second and third, respectively, the statements said.

Guotai Junan, which was created in 1999 after the merger of two smaller brokerages, currently has 345 outlets across the country, according to its website. Haitong, which started in 1988, has a network of 341 branches serving more than 24 million clients, it said.

China’s goal is to have 10 high-calibre domestic brokerages by 2029, of which two to three will be groomed to compete on a global scale by 2035, according to Wu Qing, who was named as the new chairman of the China Securities Regulatory Commission in February this year, the report said.