China Jianyin Investment (JIC) yesterday signed an agreement to
take over the bankrupt China Southern Securities, once the
country's fifth-largest broker.
Top officials with China Securities Regulatory Commission (CSRC),
the market watchdog, and the Shenzhen local government were present
at the takeover ceremony.
Sources said that JIC would take over all the assets of CSS,
including its 74 nationwide retail branches and its investment
banking unit.
JIC, which is a spin off from the China Construction Bank
designed to take charge of the state-owned lender's non-banking
business, will take over the 8 billion yuan (US$942.0 million) debt
owed to the central bank among other debts.
After the acquisition, JIC will consolidate the resources of CSS
and establish a new trading house under the Jianyin brand, said an
investment manager at Guosen Securities, a Shenzhen-based brokerage
company.
The acquisition put an end to the brokerage heavyweight's glory
days, with a registered capital of 3.45 billion yuan (US$425.4
million). The CSRC and the local government took it over at the
beginning of 2004 then announced its closure in April this
year.
The central government injected 8 billion yuan (US$986.4
million) into the debt-ridden trading house early last year when it
was discovered that it had misappropriated 8 billion yuan of
clients' money.
The capital injection was to ease the concerns of small
investors and prevent them from rushing to get back their cash,
said Xu Gang, research department manager of Beijing-based CITIC
Securities.
Most of China's brokers are performing poorly and the brokerage
market needs a fundamental reshuffle, Xu said.
Ninety percent of the mainland's brokers posted a combined loss
of more than 15 billion yuan (US$1.84 billion) last year, according
to the China Securities Association.
The CSRC is looking into reshuffling the sector, which has been
in a bad way the last four years.
China has about 130 securities firms. A dozen have reached the
regulator's standard of pilot brokers, enjoying favorable policies
for future development and product innovation. About 30 are
regarded as being well-operated. Almost all the rest suffer from
irregularities or have become debt-ridden.
Poor performers will be taken over or closed down.
JIC is wholly owned by Central Huijin, a state-owned investment
company that focuses on equity investments in the nation's major
financial institutions under the approval of the State Council.
Central Huijin and JIC will become two of the most important
forces in the reshuffling of China's brokerages by injecting cash
into pilot brokerages with money problems.
In June, Central Huijin Corporation got the nod from the State
Council to inject about US$1.5 billion into China Galaxy
Securities, one of China's biggest state-owned brokers.
About two weeks ago, CITIC Securities and JIC announced they
would work together to take over the debt-ridden China Securities,
also a former heavyweight held by the Beijing Municipal
Government.
According to an official statement by the central bank on July
15, China Jianyin got the approval to issue 10 billion yuan of
bonds from the third quarter of this year.
Most of the proceeds from the bond issue will be used in the
financial restructuring of China's major brokerage companies, the
21st Century Business Herald quoted Liu Shiyu, assistant
to the central bank's governor, as saying on July 5.
(China Daily August 2, 2005)