(Yicai) Nov. 20 -- China International Capital Corporation, one of the country’s leading brokerages, has unveiled plans to acquire Dongxing Securities and Cinda Securities, two mid-sized competitors, creating an firm with just over CNY1 trillion (USD140.5 billion) of assets.

The three companies signed a preliminary share-swap merger deal yesterday, which requires approval from their boards, shareholders, and regulators, CICC announced the same day. 

Should the merger go through, their combined assets would lift Beijing-based CICC to the No. 4 spot among China’s brokerages, up from sixth.

China's securities industry has been consolidating since last year, notably with Shanghai-based Guotai Junan Securities and Haitong Securities combining in October to form Guotai Haitong Securities, the country’s largest broker with assets of about CNY2 trillion.

CICC said its absorption of Dongxing and Cinda will help it become a world-class investment bank, organically integrate the capabilities and resources of the three parties, complement their respective strengths, and achieve economies of scale and business synergies.

As the deal involves companies listed on both the Shanghai and Hong Kong stock exchanges, the process will be relatively complex, CICC noted, adding that in accordance with relevant regulations, the three stocks were halted from trading today for up to 25 trading days.

CICC [SHA: 601995; HKG: 3908] closed at CNY34.89 (USD4.90) in Shanghai and at HKD18.96 (USD2.44) in Hong Kong yesterday, while Dongxing [SHA: 601198] and Cinda [SHA: 601059] ended at CNY13.13 and CNY17.79, respectively.

The ultimate controller of the three companies is Central Huijin Investment, a sovereign wealth fund under China Investment Corporation that was set up by the central bank in 2003. According to their third-quarter earnings reports, Central Huijin has a 40.1 percent direct stake in CICC, and indirect holdings of 78.7 percent and 45 percent in each of Cinda and Dongxing.

Central Huijin exercises the rights and fulfills the obligations of a state-owned investor in key state-owned financial enterprises within the limit of its capital contribution, aiming to preserve and increase the value of state-owned financial assets. It does not engage in other commercial business activities nor interfere in the daily operations of the enterprises it controls.

In February, China Cinda Asset Management, China Orient Asset Management, and China Great Wall Asset Management announced that the finance ministry would transfer the ownership of China’s three biggest state-owned bad debt managers to Central Huijin.

Afterward, the number of securities brokers controlled by Central Huijin increased to eight, including leading brokers and some small- and medium-sized firms.

Since then, speculation about mergers among Central Huijin’s brokers have remained high. At the end of February, for example, reports said CICC would merge with China Galaxy Securities, though the two denied this soon after. There was also speculation about a Dongxing-Cinda merger.

Editors: Tang Shihua, Futura Costaglione