State-owned China International Capital Corp (CICC) is set to merge with its peer China Galaxy Securities, said five sources, in a deal that would create the country’s third-largest brokerage with $193 billion in assets.
A combination of CICC and Galaxy, which would mark the second mega merger in China’s $1.6 trillion securities industry in a matter of months, has secured backing from Chinese authorities in recent weeks and could be announced in the coming weeks, said the sources.
Both brokers, which count sovereign wealth fund China Investment Corporation (CIC) as their biggest shareholder and parent, seek to merge via a share swap, said two of the sources. Financial details of the planned transaction were not immediately known.
The combined entity, with 1.4 trillion yuan ($193 billion) in total assets, is set to surpass Huatai Securities to become China’s third-largest brokerage. The planned deal will require regulatory and shareholder approvals, said the five sources who have knowledge of the matter.
Shares of CICC in Hong Kong soared over 8% after the Reuters report, while China Galaxy jumped 10%.
The merger would come amidst Beijing’s efforts to establish large and competitive domestic investment banks as a counterweight to global banks such as Goldman Sachs and Morgan Stanley that have in recent years taken full control of their China businesses and are eyeing a bigger market share.
The merged entity is expected to be in a stronger position to navigate the challenging conditions at home at a time when the fragmented industry’s prospects have been clouded by a stubbornly slowing economy, market weakness, and regulatory tightening in the financial sector.
All the sources declined to be named as they were not authorised to speak to the media.
CICC and Galaxy did not immediately respond to Reuters’ requests for comment. CIC declined to comment.
The State Council Information Office, which handles media requests for China’s government, and the China Securities Regulatory Commission did not respond to faxed queries.
The CICC-Galaxy merger, if approved, would be ranked after long-time industry leader Citic Securities and the combined Guotai Junan Securities-Haitong Securities in terms of total assets in the industry.
Chinese authorities have increasingly emphasised the need for reform in the brokerage sector, introducing new directives to encourage mergers and acquisitions and restructuring in an industry where more than 140 Chinese and foreign firms compete.
The securities regulator announced in March last year its goal to develop about 10 leading institutions within about five years, including two to three internationally competitive investment banks and institutions by 2035.
Reuters
