Chinese brokerage Guolian Securities is set to acquire bigger securities peer Sinolink Securities, a move that may kickstart the consolidation of brokerages in China, as foreign players increasingly enter the nation's financial sector, leading to more competition.
State-owned Guolian Securities will acquire Sinolink through a stake purchase and share swap, buying a 7.82% stake in Sinolink from its privately owned controlling shareholder Changsha Yongjin Group and issuing China-listed A-shares to all Sinolink Securities shareholders in an equity swap, Guolian Securities said in a filing Sunday.
No further details on the quantity, transfer price and delivery were given. These are still up for further discussion, Guolian Securities said.
The company said that since the transfer and merger are still in the planning stage, the shares of both companies listed on the Shanghai stock exchange will be paused starting Sept. 21. The suspension is expected to last up to 10 trading days.
“The two parties will further negotiate the details of the acquisition and reach a consensus as soon as possible and obtain the authorization from internal competent authority, and actively facilitate the signing of the formal share transfer agreement,” the company said in the filing.
Guolian Securities is currently ranked 55 in the list of 98 brokerages compiled by the Securities Association of China, with CNY 27.3 billion ($4 billion) in assets, while Sinolink Securities is ranked 33 with CNY 46.9 billion ($6.9 billion) in assets.
This tie-up comes as China is encouraging mergers of the country's brokerages, in a bid to form stronger players that can compete with foreign firms like Goldman Sachs and Morgan Stanley, which are looking to gain a bigger foothold as the nation opens up its financial sector to foreign players.
In July, the state-run newspaper China Securities Journal said that the China Securities Regulatory Commission is encouraging mergers and acquisitions among brokerages and mutual fund houses, Reuters reported.
“In order to achieve the effect of mergers and acquisitions and realize the coordinated development of parent companies and their subsidiaries, the CSRC supports the institutions setting up more flexible business scope on the premise of effectively managing unfair competition, preventing conflicts of interest and transferring interests,” the newspaper said, according to Reuters.
In April, China's largest broker, CITIC Securities, and smaller rival CSC Financial started talks to merge and in July the Communist Party committees of CITIC Securities and CSC approved the merger blueprint, Bloomberg reported, citing people familiar with the matter. However, Bloomberg noted that the two companies denied the deal speculation, Bloomberg reported.