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)