SHANGHAI, March 11 (Reuters) - Guotai Junan Securities Co Ltd, China's third-largest stock broker by profit, plans to acquire a controlling stake in its sister firm, Shanghai Securities Co Ltd, two sources with knowledge of the matter told Reuters on Tuesday.
Guotai's purchase of a 51 percent stake will help the broker meet regulatory requirements for its planned Shanghai Stock Exchange initial public offering (IPO).
Regulations from China Securities Regulatory Commission (CSRC) specify that a brokerage can only list if there are no more than two brokerages within its parent's group, one majority held, the other owned in the minority. Shanghai International Group, the parent company of both brokerages, currently holds only minority stakes in each.
Guotai officials declined to comment on the transaction, while Shanghai Securities officials could not be reached for comment.
Guotai will make part of the payment ahead of its IPO, with the remainder to be financed from equity proceeds after it lists, the sources said. They added the deal would likely be concluded by the end of March, but did not disclose a purchase price.
Guotai's application to list, which will be sponsored by China Galaxy Securities Co Ltd and Huarong Securities, is currently being considered by the CSRC.
The registered capital of Shanghai Securities is 2.61 billion yuan ($425.19 million) and its shareholders are Shanghai International Group and its subsidiary, Shanghai International Trust Co Ltd. Shanghai International Group Co Ltd currently holds 46.74 percent of Guotai's shares and is its largest shareholder.
There have been a spate of mergers and acquisitions between brokerages in China recently, as the market consolidates. Founder Securities Co Ltd announced plans to merge with China Minzu Securities for 13.2 billion yuan in January, while Shenyin & Wanguo Securities announced its purchase of Hong Yuan Securities Co Ltd in October last year.
($1 = 6.1385 Chinese yuan)
Reporting by David Lin and Adam Jourdan; Writing by Shanghai Newsroom; Editing by Matt Driskill