China investment bank CICC to acquire two smaller rivals

[HONG KONG] China International Capital Corporation (CICC) plans to acquire two smaller brokerages as the nation seeks to strengthen its securities industry to better compete with global banking giants.

CICC, one of China’s top brokerages, proposed a share-swap merger with Dongxing Securities and Cinda Securities to support financial market reforms and promote the development of the securities industry, the Beijing-based firm said on Wednesday (Nov 19). Details on the share swap and pricing were not announced.

The three entities had 1.01 trillion yuan (S$186 billion) in combined total assets as at the end of September, according to Bloomberg calculations, ranking it China’s fourth largest following Citic Securities, Guotai Haitong Securities and Huatai Securities. Still, that’s less than one tenth of Goldman Sachs.

Beijing is trying to cultivate first-class domestic investment banks capable of standing up to global heavyweights such as Goldman Sachs and Morgan Stanley. The merger aims to fast-track the creation of a world-class firm, boosting the securities industry’s growth, and better serve national strategies, CICC said.

Trading of CICC, Dongxing and Cinda in Shanghai will be suspended and the pause is expected to last no more than 25 days, as the planned merger is relatively complex, according to their statements. CICC will also halt trading in Hong Kong.

Dongxing and Cinda have a combined market capitalisation of 100 billion yuan.

China had been mulling combining its largest state-run investment banks years ago, but progress stalled until President Xi Jinping urged financial regulators in 2023 to cultivate a few top-ranked brokerages. The nation’s securities watchdog also voiced its support for consolidation, with a goal of having two to three banks that can compete globally by 2035.

The deal would be the second big merger after Guotai Junan Securities and Haitong Securities last year unveiled the terms of their proposed merger to create a larger state-backed brokerage.

Consolidating

The latest merger would also further consolidate brokerages under Central Huijin Investment, an arm of sovereign fund China Investment Corporation. Central Huijin is the largest shareholder of CICC with a 40.1 per cent stake, and the ultimate controller of Dongxing and Cinda via shareholding by its units.

That means the deal will likely go through “rather quickly”, Morgan Stanley analysts led by Chiyao Huang wrote in a note late Wednesday. The merger would strengthen CICC’s wealth management franchise and capital base, they said.

By combining complementary strengths and resources, CICC aims to achieve economies of scale, boost efficiency and create a more diversified and competitive financial services platform, the company said. The restructuring plan remains subject to approval by the three parties and relevant regulators, and there is still uncertainty over whether it will ultimately proceed, it said.

CICC is one of China’s top investment banks for debut stock sales in Hong Kong, ranking No 1 for initial public offerings (IPOs) in the city this year, data compiled by Bloomberg show. At home, competition is fierce and the firm has not claimed the top spot for IPOs since 2018.

CICC, founded in 1995, operates across securities, foreign exchange, and asset management. Dongxing Securities and Cinda Securities, both established in the 2000s, bring strong retail and institutional brokerage capabilities as well as extensive experience in underwriting, proprietary trading, and fund management, according to the statement.

Dongxing Securities is a subsidiary of China Orient Asset Management while Cinda Securities is a unit of China Cinda Asset Management. BLOOMBERG