November 1, 2013 / 2:32 AM / 5 years ago

China's Central Huijin considering merging brokerages under its control - report

SHANGHAI, Nov 1 (Reuters) - China’s Central Huijin Investment Co, the government’s main holding firm for state-owned financial companies, is considering merging some of the major Chinese brokerages in which it has controlling stakes directly or indirectly, the official Securities Times said on Friday.

Central Huijin plans to merge Hong Kong-listed China Galaxy Securities Co with China Investment Securities, the newspaper cited unidentified sources close to Central Huijin as saying.

Central Huijin, a unit of China’s sovereign wealth fund China Investment Corporation, also hopes to merge Shenyin Wanguo Securities with Hong Yuan Securities, the newspaper said.

Company officials from the respective brokerages could not be immediately reached for comment.

In a separate report, the official Shanghai Securities News said the plan to merge Shenyin Wanguo and Hong Yuan has been confirmed by the unlisted mainland parent company Shenyin Wanguo Securities, which will conduct the acquisition in order to acquire Hong Yuan’s listed shell company in Shenzhen.

Talk of the merger of Shenyin Wanguo and Hong Yuan has swirled in Chinese markets this week, but Shengyin Wanguo’s listed Hong Kong unit on Wednesday said that neither it nor its units is a party to the transaction mentioned in media reports on possible merger.

“Details of these mergers are still in early stages of discussions,” the Securities Time said. “How the mergers will be executed and what the company names will be after are still unknown.”

Analysts have long complained that China’s investment banking industry is oversaturated, with more than 100 brokerages competing for customers, most of which still lack the competitive scale of comparable Western brokerage giants.

There is also an issue of legal compliance the mergers will address. China’s latest securities regulations promulgated in 2008 restrict each brokerage to a controlling stake only in one other brokerage and a minority stake in only one other brokerage.

But brokerages controlled by Central Huijin have not yet complied with the new rules because they had already owned stakes in more counterparts before the rules took effect. The brokerages are thus ripe for consolidation, analysts have said, and the move could herald a wider restructuring of the industry.

The Securities Times reported that Central Huijin has no plan at present to merge other brokerages under its control, such as China International Capital Corp or China Jianyin Investment.

Central Huijin currently has holdings in 19 top Chinese financial institutions, including China’s biggest four state-owned banks, according to information published on its website,

It has a 78.57 percent stake in China Galaxy Securities, fully owns China Investment Securities and holds 55.38 percent in Shenyin Wanguo Securities, according to its website.

China Jianyin Investment, which is entirely owned by Central Huijin, owns a controlling 60.02 percent stake in Hong Yuan Securities.

Any mergers of these brokerages will easily create a top 10 securities house in China, and depending on the means they are merged, they could also create a top three in China’s securities industry, analysts say. (Reporting by Lu Jianxin and Pete Sweeney; Editing by Kim Coghill)

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