UBS buys into State-owned securities firm
By Chen Hua (China Daily)
Updated: 2005-09-28 08:36

UBS, one of the world's leading financial firms, is to acquire 20 per cent of Beijing Securities' shares by offering the State-owned broker 300 million yuan (US$37 million), a manager at Beijing Securities close to the deal revealed yesterday.

UBS will also provide 1.4 billion (US$173 million) of loans to Beijing Securities to help the broker pay off its debts. This is the first case of reshuffling a debt-ridden domestic securities company using foreign investment.

Beijing Securities reported a loss of 160 million yuan (US$19.8 million) last year and its net assets were about 477 million yuan (US$59 million) by the end of 2004.

Besides the 20 per cent shares UBS acquired, 5 per cent was to sold to International Finance Corp, and 45 per cent to a group of enterprises that include China National Cereals, Oils & Foodstuffs Corp.

After the sales, Beijing Municipal Government will hold 30 per cent of shares in the broker. Experts said it was quite likely that UBS would expand its share holdings in the future because according to China's World Trade Organization commitment, foreign partners can take at most a 33 per cent stake in a joint venture brokerage.

And that limit is expected to be raised, as happened with fund management joint ventures.

Foreign partners can take at most a 49 per cent stake in these businesses.

Beijing Securities is the second of the two brokers controlled by the municipal government to fall into debt and undergo a reshuffle.

Early in June this year, Beijing-based China Securities was taken over by CITIC Securities and China Jianyin Investment (JIC), an investment arm of the central bank.

JIC was also reported to be launching another brokerage this week, based on the assets it took over from the bankrupt China Southern Securities.

China's market regulator has been reshuffling the brokerage industry, whose firms are almost all State-controlled and reported a combined loss of more than US$1.84 billion last year.

Up until now about 20 problematic brokers have been closed down or taken over by other domestic financial institutions.

Inviting foreign investors is a good way to help the industry revitalize, said Lu Lixin, research department manager at Beijing Securities.

Since July 2002, when joint venture brokers were permitted by the authorities, only five joint venture brokerages have been established, such as the one between Goldman Sachs and Beijing Gaohua Securities and the one created by Xiangcai Securities and CLSA.

This is because of the 33 per cent share percentage limit for foreign partners, said Dong Chen, a senior analyst at CITIC Jianyin Securities, which was transformed from China Securities.

And foreign firms are only permitted to engage in their joint venture's underwriting operations.

UBS's acquisition of Beijing Securities stakes can be treated as a special case because the Beijing broker holds a universal licence in underwriting, proprietary trading and brokering, Dong said.

The analyst also said entering into the market when it was in difficulties could save investors a lot of money and effort.

UBS declined to make any comment on its acquisition.

(China Daily 09/28/2005 page11)

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