Chinese brokerage’s acquisition plan seen as first in wave of consolidation

Posted by Admin April 26, 2024 Bussiness

Chinese brokerage Guolian Securities jumped by the most in almost four years in Hong Kong trading after unveiling a plan to acquire a majority stake in a smaller rival, foreshadowing an increase in industry consolidation after the Chinese regulator pledged to cultivate more top-tier investment banks.

Shares of the Wuxi, Jiangsu province-based brokerage surged 25 per cent to HK$3.69 on Friday, capping its best single-day performance since September 2020. Trading in the company’s yuan-traded stock was halted in Shanghai before closing 1.2 per cent lower at 10.46 yuan.

Guolian plans to buy a 95.48 per cent stake in unlisted Minsheng Securities after signing an agreement with 45 shareholders of the target on Thursday, according to an exchange statement. Guolian will sell new yuan-denominated shares to fund the acquisition, and trading in the company’s onshore stock is expected to resume in no more than 10 days, it said, giving no further details.

A Minsheng Securities office is seen in a photo from the company’s Weibo account. Photo: Weibo

Meanwhile, top policymakers have also been giving more attention to the nation’s US$9 trillion stock market, which has stabilised after a three-year downtrend. The State Council this month issued a rare guideline document that outlines a reform path for the capital market through the middle of the century.

The acquisition is expected to make Guolian a top-20 brokerage, with combined net assets of 32 billion yuan, according to Founder Securities. Guolian had net assets of 16.8 billion yuan at the end of 2022, ranking it in 36th place, while the book value for Minsheng Securities was 15.2 billion yuan, it said.

“The merger plan will boost [Guolian’s] comprehensive business strength by a notch,” said Xu Yishan, an analyst at Founder Securities.

Global funds build ‘significant exposure’ to Chinese stocks in mood shift: HSBC

The episode fuelled expectations that more of the industry’s big players will embark on a wave of acquisitions to expand their market share. Citic Securities, the nation’s biggest listed brokerage, jumped 6.8 per cent to HK$12.32, and Haitong Securities gained 5.5 per cent to HK$3.85 while China International Capital Corp surged 10 per cent to HK$9.80.

“The State Council’s guidelines will boost the industry’s core competitiveness by supporting top players through mergers and acquisitions as well as organisational innovation,” said Liu Xinqi, an analyst at Guotai Junan Securities in Shanghai. “We expect an acceleration of industry consolidation, and that will benefit more top players.”

A three-year bear market has battered the brokerage sector. The whole industry suffered pay cuts for a second year in 2023 as a result of worsening profitability and the government’s mandate to eradicate “hedonism” among financial workers.

While China’s onshore market has bottomed out this year after a raft of state-intervention measures, that will do little to revive earnings growth among brokerages in the first quarter, because of heightened regulatory scrutiny of initial public offerings and a higher year-earlier base, according to Guotai Junan. The 43 listed brokerages probably reported a 20 per cent year-on-year profit decline in the period, it said.