China pushes First Capital merger in drive to take on Wall Street giants

FILE PHOTO: A woman wearing a face mask walks on a pedestrian overpass with an electronic board showing the Shanghai and Shenzhen stock indexes, China, March 13, 2020. REUTERS/Aly Song

China plans to merge domestic broker First Capital Securities with smaller rival Capital Securities, three sources said, underscoring Beijing’s determination to consolidate the brokerage industry to take on the giants of Wall Street.

China wants to level the playing field as it opens up its financial markets to foreign players including Goldman Sachs and Morgan Stanley, said two of the sources with knowledge of the matter.

In addition to consolidation, China wants to build firms mighty enough to take on Wall Street behemoths in the domestic industry, which is worth 8 trillion yuan ($1.2 trillion) and has over 130 firms.

The merger strategy is being encouraged by the China Securities Regulatory Commission, the top securities regulator, the state-run China Securities Journal reported last month.

Shenzhen-listed First Capital, with a market value of $6.2 billion, plans to issue new shares to private Capital Securities in a deal valuing the smaller firm at about $1.4 billion, said one source, speaking on condition of anonymity as the information was private.

The merger of the two firms – ranked 44th and 62nd respectively by operating revenue last year – could be finalised as early as this year, the source added.

Shares in First Capital surged by the maximum 10% on the news on Thursday to their highest level since Aug. 6.

The Beijing municipal government owns 23% of First Capital and 91.5% of Capital Securities via several companies, the corporate registry showed.

Capital Securities had been preparing for a domestic listing for months but had slowed down the process to prioritise the potential merger, said another source.

First Capital said in a filing on Thursday night that the media report on its merger with Capital Securities is untrue and it does not plan such a merger for at least three months.

Capital Securities, the Beijing government and the Beijing office of the state asset regulator did not respond to requests for comment.

The potential tie-up comes as China’s largest broker, Citic Securities, is in the process of merging with smaller peer China Securities Co, said the other two sources. Both companies have previously dismissed media reports on the merger.

Until now, no other brokerages have been publicly named as merger candidates, and talk of a merger between First Capital and Capital Securities indicates that the consolidation strategy is gathering pace.

Citic Securities and CSC did not respond to requests for comment.

Wall Street firms are jostling for a greater share of the Chinese market after Beijing promised to scrap foreign ownership caps on securities firms and mutual funds for foreign investors from April, in an interim Sino-U.S. trade deal signed in January.

Investment banks including Goldman which already hold majority stakes in their China securities business are seeking to move towards 100% ownership and expand operations.

Reuters

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Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.