Consolidation among Chinese securities brokerage firms, propelled by central regulators’ policy support and guidance, will allocate industry resources more rationally and lead to a rapid growth of securities firms, experts said.
Their comments came as Guolian Securities announced the terms of its deal to acquire Minsheng Securities late on Thursday.
Once complete, it will be the first merger after top regulators called for nurturing first-class investment banks during the Central Financial Work Conference in November.
Guolian Securities, which is based in Wuxi of East China’s Jiangsu province, said on Thursday that it will issue over 2.64 billion shares in the transaction worth about 29.5 billion yuan ($4.1 billion). It said it will also issue shares to no more than 35 specific investors to raise a maximum of 2 billion yuan in matching funds.
Guolian announced its intention to acquire Shanghai-based Minsheng Securities less than three months ago.
Guolian gained 2.24 percent, even as A-share securities firms reported an average loss of 0.94 percent on Friday. The benchmark Shanghai Composite Index shed 0.27 percent to close at 2,862.19 points.
Analysts from CITIC Securities said the merger of the two securities firms will further help optimize resources.
Guolian is expected to show substantial development, especially in the brokerage, investment banking, asset management, investment and fund distribution businesses.
According to data from market tracker Wind Info, Minsheng Securities served as the sponsor for four initial public offerings over the past seven months this year, only next to Huatai United Securities and CITIC Securities, both of which sponsored five IPOs during the same period.
The combined asset value of the two firms was about 147 billion yuan by the end of 2023, according to Wind Info. The size is still small compared to industry juggernauts such as CITIC Securities and Guotai Junan Securities, which saw their respective assets amounting to 1.45 trillion yuan and 925 billion yuan at the end of last year.
In this sense, more M&As of midsize securities firms can be anticipated as central regulators support more industry consolidation, said Cao Haifeng, a non-banking financial industry analyst of UBS Securities.
In a guideline released in April to strengthen supervision and advance the capital market’s high-quality development, the State Council encouraged industry leaders to step up M&As and restructuring.
The China Securities Regulatory Commission, the country’s top securities watchdog, said in a guideline in March that leading securities brokerages should improve their competitiveness via M&A deals and restructuring, which will be conducive to the high-quality development of the entire securities industry.
Restructuring in the Chinese securities industry has thus accelerated.
In early May, Hangzhou-based Zheshang Securities said it will acquire a 34.25 percent stake in Shenzhen-based Guodu Securities. In a business briefing held on March 29, Shi Hua, chairman of Founder Securities, said the brokerage has been advancing its merger with Ping An Securities.
Plastic pipes maker Polaris Bay Group Co Ltd, the parent company of Hua Chuang Securities, said in December that its securities subsidiary will take a controlling stake in Pacific Securities. Polaris Bay told investors in late April that progress has been made under the regulator’s guidance.
Cao of UBS said more companies with prime operations in the real economy will participate in securities firms’ M&As by spinning off their financial services units.
This will help these companies focus on their major businesses, Cao added.
Meanwhile, mergers of industry leaders are also expected, as it is in line with the policies of the top regulators, said Cao.
One may look to Japan for similar examples after the late 1990s. While the number of securities firms has been streamlined, big firms have become stronger after M&As, with their payment abilities and capital size significantly improved, he added.
Analysts from Ping An Securities said competition in the securities industry has intensified over the past few years amid lowered commissions and the entry of more foreign brokerages.
While there were 145 domestic securities firms at the end of 2023, there was little differentiation among these in terms of specific businesses or strengths.
shijing@chinadaily.com.cn