(Yicai Global) Dec. 25 — CITIC Securities, a major Chinese securities broker, plans to acquire a small brokerage firm, Guangzhou Securities. Experts believe mergers and acquisitions could be a good solution amid a weak market.
CITIC Securities intends to acquire 100 percent equity in south China-based Guangzhou Securities through the issuance of shares, and has penned a deal with the latter's shareholders and Guangzhou Yuexiu Financial Holdings, it said in a statement issued late yesterday.
China's A-share market has been in a downturn this year, and many small- and medium-sized brokers have suffered losses, so seeking help through M&As is a reasonable step, a Shenzhen-based investment banker told Yicai Global. Major brokers, meanwhile, can quickly grab market share through M&As, the banker added.
The two parties will not have to finance any other arrangements if they make the acquisition through share swap. The key is that the two parties agree to a mutually satisfactory share conversion ratio, an insider said.
Guangzhou Securities fell into losses in the first half of the year. It gained an operating income of CNY801 million (USD116.4 million) but suffered a net loss of CNY30 million in the first half of the year. CITIC Securities' operating income in the first half of the year was nearly CNY20 billion, and the net profit attributable to shareholders of the parent company reached CNY5.6 billion. So, the latter far surpasses the former in terms of all business standings in the sector.
CITIC will increase its market share after the M&A, the insider noted, saying the expansion will pave the way for CITIC to take back the leading position from its rival Huatai Securities.
CITIC's market share was 6 percent in the first half while Guangzhou Securities was 0.45 percent, with the current sector leader Huatai Securities at 6.6 percent, public data shows.