Shenyin & Wanguo Securities Co. agreed to acquire Hong Yuan Securities Co. for 39.6 billion yuan ($6.4 billion) in stock to create the nation’s fifth-largest brokerage by assets.
Shenyin & Wanguo will issue 2.049 shares for each Hong Yuan share, the target company said in filings with the Shenzhen Stock Exchange. In total, the acquirer will issue 8.14 billion shares at 4.86 yuan apiece and plans to assume Hong Yuan’s listing in Shenzhen, according to the filings.
Chinese securities firms are seeking to bolster capital and market share through acquisitions and equity sales as profitability dwindles. The Hong Yuan purchase is the biggest takeover in mainland China’s financial industry, surpassing Ping An Insurance Group Co.’s $4.3 billion acquisition of Shenzhen Development Bank Co. in 2011, data compiled by Bloomberg show.
“Deals such as this one are what regulators and management like to see happen,” Chen Xingyu, a Shanghai-based analyst at Phillip Securities Research, said by phone yesterday. “Creating large firms through mergers and acquisitions will give these Chinese brokerages an edge when facing foreign competitors as China further liberalizes its capital markets.”
Total assets of the nation’s 115 securities firms -- led in revenue by Citic Securities Co. -- climbed 20 percent last year to $334 billion, according to the Securities Association of China. That’s about one-third of the $912 billion at New York-based Goldman Sachs Group Inc.
Shenyin & Wanguo and Hong Yuan had total assets of 91 billion yuan in 2013, Securities Association of China data show. Citic Securities is the nation’s largest brokerage with assets of 193 billion yuan.
Central Huijin Investment Ltd., the sovereign investor that holds stakes in China’s biggest banks and other financial institutions, controls both Shenyin & Wanguo and Hong Yuan. The merger plan was part of Huijin’s strategy to integrate its holdings in the companies, Shenyin & Wanguo Chairman Li Jiange said in April.
Chinese brokerages, which make most of their money executing trading orders for individual investors, have seen profitability plunge to about one-eighth of 2007 levels as trading commissions drop amid investors’ disenchantment with equities.
Founder Securities Co., Credit Suisse Group AG’s Chinese partner for an investment banking joint venture, this month won approval from the China Securities Regulator Commission for its planned acquisition of smaller rival China Minzu Securities Co. The regulator had earlier approved Guotai Junan Securities Co.’s plan to purchase 51 percent of Shanghai Securities Co. for 3.57 billion yuan, Xinhua News Agency reported July 6.
Guotai Junan, China’s third-largest brokerage by revenue, is also among six securities firms awaiting approval for initial public offerings, according to filings posted on the regulator’s website.
Shares of Shenyin & Wanguo’s Hong Kong-listed unit jumped 25 percent this year, outpacing a 3.9 percent gain in the benchmark Hang Seng Index. Trading in Hong Yuan’s shares has been suspended since Oct. 30.