(Nov 20): China International Capital Corp (CICC) plans to acquire two smaller brokerages as the nation seeks to strengthen its securities industry to better compete with global banking giants.
CICC, one of China’s top brokerages, proposed share-swap merger with Dongxing Securities Co and Cinda Securities Co, which have a combined market value of CNY100 billion ($18.4 billion). Details of the share swap and pricing weren’t announced.
The deal will support financial market reforms and promote the development of the securities industry, the Beijing-based firm said in a statement late on Wednesday.
In total, the three firms sit on combined assets of just more than one trillion yuan, making it China’s fourth largest following Citic Securities Co, Guotai Haitong Securities Co and Huatai Securities Co. Still, that’s less than one 10th of Goldman Sachs Group Inc’s assets.
Beijing is trying to build first-class domestic investment banks capable of standing up to global heavyweights such as Goldman Sachs and Morgan Stanley. The merger aims to fast-track the creation of a world-class firm, boosting the securities industry’s growth, and better serve national strategies, CICC said.
Trading of all three will be suspended in Shanghai and the pause is expected to last no more than 25 days, as the planned merger is relatively complex, according to the statements. CICC will also halt trading in Hong Kong.
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China had been mulling combining its largest state-run investment banks for years, but progress was slow until Chinese President Xi Jinping in 2023 urged regulators to form a few top-ranked brokerages. The securities watchdog also voiced its support for consolidation, with a goal of having two to three banks that can compete globally by 2035.
The deal would be the second big merger after Guotai Junan Securities Co and Haitong Securities Co last year unveiled a combination to create a larger state-backed brokerage.
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The development is igniting optimism in the sector, with a Bloomberg gauge of mainland listed brokerages shares rising as much as 2.1% and Hong Kong-listed peers gaining 3.4%. Capital Securities Co and Orient Securities Co jumped as much as 9.1% and 4.7% respectively to lead gains in Shanghai.
China’s brokerage industry had been reeling from a deal slump in recent years, before a stock rally and recovery in share sales this year lifted earnings. Nine-month net income more than doubled from a year earlier for CICC, and jumped more than 50% for Dongxing and Cinda, according to their latest filings.
Consolidating
The latest merger would also further consolidate brokerages under Central Huijin Investment Ltd, an arm of sovereign fund China Investment Corp. Central Huijin is the largest shareholder of CICC with a 40.1% stake, and the ultimate controller of Dongxing and Cinda via shareholding by its units.
That means the deal will likely go through “rather quickly”, Morgan Stanley analysts led by Chiyao Huang wrote in a note late on Wednesday. The merger would strengthen CICC’s wealth management franchise and capital base, they said.
By combining complementary strengths and resources, CICC aims to achieve economies of scale, boost efficiency and create a more diversified and competitive financial services platform, the company said. The restructuring plan remains subject to approval by the three parties and relevant regulators, and there is still uncertainty over whether it will ultimately proceed, it said.
CICC is one of China’s top investment banks for debut stock sales in Hong Kong, ranking No 1 for initial public offerings (IPOs) in the city this year, data compiled by Bloomberg showed. At home, competition is fierce and the firm hasn’t claimed the top spot for IPOs since 2018.
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Founded in 1995, CICC operates across securities, foreign exchange, and asset management. Dongxing and Cinda Securities, both established in the 2000s, bring strong retail and institutional brokerage capabilities as well as extensive experience in underwriting, proprietary trading, and fund management, according to the statement.
Dongxing Securities is a subsidiary of China Orient Asset Management Co while Cinda Securities is a unit of China Cinda Asset Management Co.
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