Brokerages' deal augurs well for capital market recast

Regulators' strengthened supervision will help China's capital market to mature toward its high-quality development, domain experts said on Wednesday after reviewing the latest market consolidation deal in the segment of securities brokerages.

They said higher requirements in terms of eligibility criteria for various market entities, and a tighter grip over financial intermediaries like securities brokerages, augur well for the future development of China's capital market.

Their comments emerged after Guolian Securities announced on Tuesday night it will acquire 100 percent of Minsheng Securities by issuing no more than 2 billion yuan ($260 million) worth of its shares to retail investors in the secondary market. It will also make a private placement of no more than 250 million shares. Industry experts estimated that the deal value may exceed 32 billion yuan.

The deal confirms the trend of restructuring in the Chinese securities industry, which has been accelerating this year.

Guolian Securities, which suspended trading for 10 days prior to the latest announcement, saw its share price surge by the daily limit of 10 percent to 11.51 yuan shortly after it resumed trading on Wednesday. The benchmark Shanghai Composite Index closed 0.82 percent lower.

Prior to this ongoing deal, Guolian Securities, based in Wuxi of East China's Jiangsu province, was considered a local securities firm with expertise in wealth management, asset securitization and derivative businesses. Shanghai-headquartered Minsheng Securities has an extensive branch network covering nearly 30 Chinese provincial-level regions and enjoys advantages in investment banking services.

Guolian Securities will seek to "leapfrog" in its development upon the acquisition, it said in its announcement.

On Friday, Hangzhou-based Zheshang Securities announced it is projected to acquire a 34.25 percent stake in Shenzhen-based Guodu Securities based on the recent transfer of shares from the latter's two other major shareholders. In a business briefing held on March 29, Shi Hua, Founder Securities' chairman, said the brokerage has been advancing its merger with Ping An Securities.

Polaris Bay Group Co Ltd, the parent company of Hua Chuang Securities, announced in December it will take a controlling stake in Pacific Securities. It told its investors in late April that progress has been made under the regulator's guidance.

In a guideline released in April to strengthen supervision and advance the capital market's high-quality development, the State Council, China's cabinet, encouraged industry leaders to step up mergers and acquisitions and restructuring.

For its part, the China Securities Regulatory Commission, the country's top securities watchdog, suggested 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.

This followed its note in November, which said that leading securities firms are encouraged to pursue business innovation, corporate operations, M&A deals and restructuring so that "they can grow into first-rate investment banks".

In a news conference during the annual two sessions in early March, Wu Qing, the CSRC's chairman, said the foundation of the Chinese capital market should be further consolidated while tightening supervision.

Different from traditional financial institutions, securities firms are armed with a toolbox that can serve the real economy more deeply, including bond financing and equity financing, said Wang Peng, deputy researcher at the Beijing Academy of Social Sciences.

The merger of securities firms can expand their business coverage and enrich their product portfolio. The brokerages can thus provide comprehensive and differentiated wealth management services to investors. In this sense, stronger brokerage firms can better link financing and investment, facilitating China's economic transformation, he said.