SHANGHAI/HONG KONG (Reuters) -Shares of Chinese brokerages gained on Thursday after China International Capital Corp (CICC) said it would acquire two rivals, stoking expectations of further consolidation in the country’s $1.6 trillion securities industry.
State-owned CICC said it would take over Dongxing Securities and Cinda Securities via share-swaps, adding that the move would accelerate its growth, support China’s financial market reforms, cut costs and improve shareholder returns.
The deal is set to create China’s fourth-largest investment banking giant with assets in excess of 1 trillion yuan ($140 billion), trailing only CITIC Securities, Guotai Haitong Securities and Huatai Securities.
The central government has been eager to see more consolidation and foster large, globally competitive investment banks. Currently there are about 150 firms in the sector.
The M&A plans will help CICC “replenish capital” and “catch up to peers in terms of scale,” Citi said in a note to clients, noting that Dongxing and Cinda were strong in terms of capital and their retail businesses.
Brokerages that saw their stocks gain on excitement about potential consolidation included Capital Securities in China, which climbed 5%. In Hong Kong, Orient Securities gained 4% and Shenwan Hongyuan Group Co rose 2.5%.
Shares of CICC, Dongxing and Cinda were suspended from trading on Thursday.
SECURITIES POWERHOUSE
The three companies are controlled directly or indirectly by Central Huijin Investment, a Chinese sovereign fund. According to a research note from Galaxy Securities, more consolidation is expected among securities brokerages.
Central Huijin controls another three securities firms in China: China Galaxy Securities, Shenwan Hongyuan Securities and Great Wall Glory Securities.
Beijing has said it wants two to three “world-class investment banks” by 2035 and as a result, state firms are expected to receive policy support to merge and create powerhouses in the sector.
In February, Reuters reported that CICC was planning to merge with Galaxy Securities.
Shanghai-based Guotai Junan Securities acquired its cross-town rival, Haitong Securities, in September 2024. Both are controlled by companies that manage state assets for the Shanghai government.
COMPLEMENTARY BUSINESS
Soochow Securities said CICC has strength in investment banking, institutional business and wealth management.
Dongxing has experience in asset disposals, while Cinda has an edge in asset management and M&A, the brokerage said.
Founded in 1995 by China Construction Bank, Singapore sovereign investment fund GIC and Morgan Stanley as China’s first Sino-foreign joint venture investment bank, CICC has been prominent in helping many large Chinese companies – notably state-owned enterprises – list at home and in Hong Kong. Dongxing and Cinda are much smaller. At the end of the third quarter, Dongxing’s total assets stood at 116.4 billion yuan, while Cinda had 128.3 billion yuan in assets. That compared with CICC’s total assets of 764.9 billion yuan. Geographically, CICC’s network is located mainly in economically developed regions, while Cinda and Dongxing have strong footholds in places like northeastern Liaoning province and southern Fujian province.
It means “the consolidation will further expand the reach of CICC’s wealth management business,” Soochow Securities said.
($1 = 7.1147 Chinese yuan)
(Reporting by Samuel Shen in Shanghai and Selena Li in Hong Kong; Editing by Edwina Gibbs and Thomas Derpinghaus)
