Hong Yuan agrees to be bought by Shenyin to create China's 3rd-biggest brokerage

SHANGHAI Fri Jul 25, 2014 7:26am EDT

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SHANGHAI Jul 25 (Reuters) - The management of Hong Yuan Securities Co Ltd has agreed to be bought by Shenyin & Wanguo Securities Co Ltd for 39.6 billion yuan ($6.40 billion), creating China's third-biggest brokerage.

Hong Yuan will swap one A-share for every 2.049 Shenyin A-share should Hong Yuan shareholders approve, Hong Yuan said in a filing to the Shenzhen Stock Exchange on Friday.

Representatives at Shenyin could not be immediately reached for comment.

State media reported talks of the deal in October which were subsequently denied by Shenyin's Hong Kong-listed subsidiary, Shenyin Wanguo HK Ltd. Around the same time, Hong Yuan suspended the trading of its shares pending "restructuring".

Hong Yuan and Shenyin were the 12th and 10th biggest brokerages by net profit last year, showed data from the Securities Association of China. The post-acquisition entity would rank third after Haitong Securities Co Ltd and CITIC Securities Co Ltd .

Both Hong Yuan and Shenyin are controlled by Central Huijin Investment Ltd, the government's main holding firm for state-owned financial companies.

Central Huijin has been consolidating subsidiaries to comply with regulations introduced in 2008 restricting brokerages to owning one controlling stake and one minority stake in other brokerages.

There are over 100 brokerages in China which analysts say are too many and include a number that are too small to compete with major Western brokerages.

But profits at small brokerages soared in the first half of this year driven by the resumption of mainland initial public offerings after a year-long hiatus.

($1 = 6.1913 Chinese Yuan) (Reporting by David Lin and Engen Tham; Editing by Christopher Cushing)

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