HSBC finally gets approval for China securities JV

HONG KONG, June 30 (IFR) - HSBC has finally been given the go-ahead from the China Securities Regulatory Commission for its securities joint venture in China, becoming the first foreign bank to receive approval for a majority-owned JV in the mainland.

The CSRC’s decision comes more than 18 months after HSBC first announced the JV, which had prompted concerns the UK-headquartered bank may lose its advantage in the race to become the first to secure majority ownership of its onshore JV.

Earlier this year, Morgan Stanley agreed with its Chinese JV partner, Huaxin Securities, to raise its stake to 49% from 33.3% in a move widely interpreted as preempting plans from the Chinese regulators to allow foreign firms to take majority stakes in their securities JVs.

UBS is also said to have entered talks with its partners to increase its stake to 49% from 25%.

The CSCR’s approval for HSBC is an important step for the bank, which has staked a lot of its growth plans on increasing revenue from the fast-growing Pearl River Delta region.

HSBC owns 51% in the JV company, known as HSBC Qianhai Securities. Qianhai Financial Holdings owns the remaining 49% stake.

The JV is located in Shenzhen’s Qianhai district. It is expected to start operations by the end of the year.

HSBC tabled proposals to become the first foreign lender to establish a majority-owned securities JV in China in November 2015.

In 2013, supplementary agreements to the Closer Economic Partnership Agreement between China, Hong Kong and Macau had relaxed certain criteria for foreign firms operating in China’s domestic securities market.

The CSRC followed up with guidance in August 2015, allowing foreign majority ownership in the securities sector for the first time, among other things.

Since HSBC submitted its application for the JV, two other JV were granted approval under CEPA, according to research from consulting firm Quinlan & Associates.

These were Huajing Securities, a JV between China Renaissance and two other mainland investors, and Shengang Securities, which is owned by 14 investors.

In addition to allowing foreign banks to take up a majority stake in their JVs, the amendments to CEPA also allow for the JVs to carry out a wider range of services than other foreign rivals including providing A-share brokerage services.

HSBC has been granted licences to provide a range of services including equity research and brokerage, equity and debt underwriting and cross-border M&A advisory.

The approval is also a boon for HSBC CEO Stuart Gulliver, who has partly staked his reputation on growing the bank’s presence in the southern region of China.

The bank previously announced that its investment in the Pearl River Delta would include hiring 4,000 staff.

Bank of East Asia has also received approval from the CSRC for the establishment of its JV through CEPA, known as East Asia Qianhai Securities Company.

BEA owns a 49% stake in the company, while Qianhai Financial Holdings and two other local corporate shareholders own the remainder.

The JV will be incorporated in Qianhai with issued capital of Rmb1.5bn (US$221m) and has been granted securities brokerage, securities underwriting, asset management and proprietary trading licences. (Reporting by Thomas Blott)