CITIC plans stake acquisition
By Sun Min (China Daily)
Updated: 2004-09-03 09:03

In a rare acquisition attempt in the securities industry, CITIC Securities Co announced yesterday that it plans to buy a stake in Guangzhou-based GF Securities Co.

The two companies, both in the top range of securities firms in China, are still to negotiate on the size and price of the purchase.

The managerial staff of CITIC Securities has already been authorized by the board to finalize the deal, the Shanghai-listed securities house said in a statement yesterday.

A spokesman with CITIC Securities said yesterday that the two sides are still discussing the details of the stake acquisition and are expected to announce a final result later this month.

The company's shares gained 3.54 per cent to close at 6.73 yuan (US$0.81) yesterday.

CITIC Securities, based in Beijing and a subsidiary of the conglomerate CITIC Group, was the first securities firm to become listed in China, with total assets of 13.7 billion yuan (US$1.7 billion) at the end of June.

GF Securities also boasts total assets of 12 billion yuan (US$1.4 billion). The two have a good history of co-operation. GF was CITIC's lead underwriter in its initial public offering.

CITIC sources said the acquisition would ensure the two firms to share their resources and increase their competitiveness and strength. CITIC is also in the middle of a buy-out of affiliated Wantong Securities.

The strategic alliance is based on long-term prospect, analysts said.

"It is still hard to give an assessment of CITIC's stake purchase in GF, since the exact price and stakes are not now clear," said Yin Guohong, an analyst with China Securities Co.

Since the stock market has been bearish for months and the profitability of securities firms has been much affected, such an acquisition move by a securities firm would increase expenses in the short term and the risk is also obvious, unless the price is very attractive, said Yin.

Apart from price, another element that brings the two firms together is the sharing of their network.

CITIC Securities has 41 brokering outlets while GF Securities has 78, and obviously a bigger network in Southern regions.

Asset quality is also a determining factor for the success of the purchase, said Yin.

Some securities companies are seeking external investors and funds to help them get out of debt and get back in the black. Reported problems of Southern Securities, for example, have forced local government and securities regulators to come to the rescue and take over control of the Shenzhen-based firm.

But GF Securities is not involved in scandals or debt problems, so the acquisition by CITIC Securities will be more market-oriented, said Yin.

Analysts have predicted an increasing number of mergers and acquisitions among securities firms in the next few years.

The overall industry is haunted by limited financial channels and profit resources, while investment failure in the tumbling stock market has also added to losses.

Foreign firms are also muscling in. Following the launch of two securities joint ventures during the past two years, global investment banks such as Goldman Sachs are trying to find local partners and form ventures where they can get controlling rights.

CITIC Securities reported net profits of 56.6 million yuan (US$6.8 billion) in the first six months of the year, down 63.7 per cent from the same period a year ago. The company said that the market correction in the second quarter was a major reason for the profit decline.