On the night of September 5th, Beijing time, leading domestic securities firms Guotai Junan and Haitong Securities respectively announced that they are planning a major asset restructuring through Guotai Junan's stock-for-stock absorption and merger of Haitong Securities and the raising of supporting funds. Both companies' A-shares will be suspended from trading starting September 6th, with an expected suspension period not exceeding 25 trading days.
Specifically, Guotai Junan is planning to absorb and merge Haitong Securities by issuing A-shares to all A-share shareholders of Haitong Securities and issuing H-shares to all H-share shareholders of Haitong Securities, and raising supporting funds through the issuance of A-shares.
The announcement stated that during the suspension period, both companies will actively promote the relevant work and fulfill their information disclosure obligations. The formal transaction documents of this reorganization need to be reviewed by the respective boards of directors and shareholders' meetings of both parties, and can only be officially implemented after approval by the competent regulatory authorities. There is still uncertainty about whether it can be implemented.
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After the merger, the total assets and net assets will jump to the industry's first place, creating a "super aircraft carrier" for securities firms, and accelerating the pace of mergers and acquisitions in the sector.
According to media analysis such as Securities China, based on the 2023 financial report data, the total assets and net assets attributable to the parent company of the new institution after the merger of Guotai Junan and Haitong Securities will reach 1.68 trillion yuan and 330 billion yuan, respectively, both surpassing CITIC Securities to be in the industry's first place, and can be called the "super aircraft carrier" of the securities industry. If the operating income of Guotai Junan and Haitong Securities in the first half of 2024 is simply added up to 25.935 billion yuan, and the net profit attributable to the parent company is added up to 5.969 billion yuan, both are only second to CITIC in the industry, and the gap with CITIC's indicators is more than 4 billion yuan.
The 21st Century Economic Report stated that the merger of Guotai Junan and Haitong Securities, the two giants, indicates that the 1.68 trillion yuan "super aircraft carrier" of the securities industry is about to emerge. It is the first merger and reorganization of leading securities firms since the implementation of the new "Nine Articles", and it is also the largest A+H dual market absorption and merger, and the largest integration case of listed securities firms A+H in the history of China's capital market. It involves multiple business licenses and many domestic and foreign listed subsidiaries, and belongs to a major unprecedented innovative matter.
There is also analysis pointing out that Guotai Junan's announcement to start the procedure of merging Haitong Securities is the "official landing" after several months of rumors. The asset scale of the new company in the future will surpass CITIC Securities and become the largest domestic securities firm. Guotai Junan and Haitong Securities are both controlled by Shanghai state-owned capital, and it is this key factor that makes the merger of the two companies a reality.
Previously, according to the Financial Times, in addition to the merger cases of small and medium-sized securities firms that have been announced, there have been rumors about the merger of leading securities firms in recent times, involving CITIC Securities and China Galaxy Securities, CITIC Securities and CITIC Construction Investment, Haitong Securities and Guotai Junan, etc. Among them, the rumors about China Galaxy Securities and CITIC Securities have attracted more attention. In October 2023, when there were personnel changes in CITIC Securities and China Galaxy Securities, the market speculated that the two parties had an integration trend.
In addition to the merger of Guotai Junan and Haitong Securities, under regulatory guidance, there have been six securities firm mergers and acquisitions disclosed this year, representing the "acceleration of the pace of securities firm mergers and acquisitions". The latest example is that Guoxin Securities announced earlier this week that it plans to issue shares to acquire Wanhe Securities, which is also under the control of Shenzhen state-owned capital, aiming at cross-border business. This acquisition plan has only been 14 days since the first announcement of the acquisition of Wanhe Securities. There have also been combinations such as "Zheshang + Guodu", "Guolian + Minsheng", "Western + Guorong", "Ping An + Fangzheng", "Pacific + Hua Chuang", etc.
The consideration of "strong alliance": complementary advantages, optimize the layout of Shanghai's financial state-owned capital, and help build Shanghai into an international financial center.According to industry insiders cited by the Shanghai Securities News, Guotai Junan Securities and Haitong Securities are both large-scale comprehensive securities firms with distinctive features in business structure, digital technology, compliance and risk control, sci-tech finance, and international layout.
This merger aligns with the strategic development direction of both companies, which is beneficial for sharing professional capabilities and customer resources, enhancing customer service capabilities, and improving centralized management levels and operational efficiency. It also facilitates the complementary advantages, perfects the layout in key areas, industries, and regions, comprehensively enhances risk resistance, strengthens core competitiveness, better fulfills duties and missions, and improves the level of serving the real economy.
The analysis by Securities China also states that there are three major considerations behind the merger of Guotai Junan and Haitong Securities. In addition to helping both parties complement each other's strengths and enhance core functions, it can also optimize the layout of Shanghai's financial state-owned capital, strengthen and optimize state-owned capital. "Shanghai urgently needs to build a world-class investment bank to help build Shanghai into an international financial center, and the merger and reorganization of leading securities firms will become an effective way."
The implementation plan for the "State-owned Enterprise Reform Deepening and Improvement Action Plan (2023-2025)" passed at the end of last year clearly proposes to "support leading securities companies to strengthen business innovation, group operations, and mergers and acquisitions, and build first-class investment banks." The fifth plenary session of the 12th Shanghai Municipal Committee proposed to "deeply promote the deepening and improvement of state-owned enterprise reforms" and "focus on the construction of 'five centers' to increase the intensity of reform and opening up."
Public information shows that Guotai Junan Securities was established in August 1999 through the new establishment and capital increase of Guotai Securities and Junan Securities, which were both established in 1992. In recent years, its core financial indicators have been in the first echelon of the industry, and it has obtained the highest regulatory rating of Class A, Level AA from the China Securities Regulatory Commission for 17 consecutive years. The actual controller is currently Shanghai International Group Co., Ltd.
Haitong Securities was established in 1988, initiated by the Bank of Communications, also headquartered in Shanghai, and is one of the earliest established and most comprehensively strong securities companies in China. It has an integrated business platform, a huge marketing network, and a strong customer base. There is no controlling shareholder or actual controller, and the current largest shareholder is Shanghai Guosheng (Group) Co., Ltd., a subsidiary of Shanghai State-owned Assets.
The new "Nine Articles" and dense policy support for the fifth wave of integration in the securities industry, and the securities firm sector is expected to see marginal improvement.
From the perspective of the industry background, according to China Industrial News, this year can be called the fifth wave of integration in China's securities industry since the 1990s, and it has been strongly promoted by the new "Nine Articles" in April and a series of regulatory support policies.
21st Century Finance cited Wang Fangchao, the chief analyst of the non-bank financial industry at Cinda Securities, saying that under the catalysis of accelerated mergers and acquisitions of securities firms and the supply-side reforms and cost reduction and efficiency enhancement they bring, the securities firm sector is expected to see marginal improvement. It is recommended to pay attention to leading securities firms that fit the merger theme.
From the perspective of industry cases, in recent years, the securities industry has entered a high-incidence period of mergers and acquisitions, with many small and medium-sized securities firms either joining forces or being taken over by local state-owned capital or leading securities firms.As early as November 2019, the China Securities Regulatory Commission (CSRC) first proposed encouraging the industry-wide merger and acquisition among securities firms to create aircraft carrier-level securities companies. In July 2020, the CSRC issued a notice to its dispatched institutions, encouraging securities firms and fund companies with conditions to carry out market-oriented mergers and reorganizations.
In October 2023, the Central Financial Work Conference proposed the task goal of "cultivating first-class investment banks and investment institutions." The CSRC immediately stated in November of that year that it would support leading securities companies to become stronger and better through business innovation, group operation, mergers and reorganizations, and other means, to create first-class investment banks.
In March 2024, the CSRC introduced a series of policies, including the "Opinions on Strengthening the Supervision of Securities Companies and Public Fund Management Companies and Accelerating the Construction of First-Class Investment Banks and Investment Institutions (Trial)," which clearly proposed to promote the formation of about 10 high-quality leading institutions to lead the high-quality development of the industry. It supported leading institutions to become stronger and better through mergers and reorganizations, organizational innovation, and other means. For the first time, it published a clear roadmap for creating first-class investment banks and investment institutions, proposing "by 2035... to form 2 to 3 investment banks and investment institutions with international competitiveness and market leadership."
In April 2024, the new "Nine National Articles" were released, and the State Council issued the "Several Opinions on Strengthening Supervision, Preventing Risks, and Promoting High-Quality Development of the Capital Market," which proposed "supporting leading institutions to enhance core competitiveness through mergers and reorganizations, organizational innovation, and other means, and encouraging small and medium-sized institutions to develop differently and operate with characteristics."
The analysis generally believes that mergers and reorganizations among securities firms can often achieve complementary business areas and types of business, bringing further development opportunities for securities firms. Over the past decade, there have been several typical cases, such as CICC's acquisition of CITIC Securities, and CITIC Securities' acquisition of Guangzhou Securities. Through mergers and reorganizations, they have seized opportunities to strengthen their own weaknesses and continuously improved their strength.
Analysts Ma Tingting and Chen Huiqin from Guosheng Securities pointed out that mergers among securities firms help the industry to reduce risks and improve performance, and leading and local leading securities firms may benefit more; overall, the acceleration of mergers among securities firms helps to speed up the process of keeping the good and eliminating the bad, to clear out some securities firms that lack competitiveness and have weak risk control, and to enhance the industry's overall risk resistance.
Ping An Securities believes that in the future, valuable market-oriented integration among securities firms will be presented in four directions: First, strong alliances, large securities firms + large securities firms to integrate and create aircraft carrier-level securities firms; second, traditional business to make up for shortcomings, to make up for individual business shortcomings through mergers; third, customer resource integration, regional customer resource integration, or integration of different types of customer resources, such as the complementarity of high-net-worth customers and long-tail customers, the complementarity of retail customers and institutional customers, etc.; fourth, to strengthen overseas layout, technology layout of external expansion, to accelerate the process of internationalization by acquiring overseas institutions, to increase technology empowerment by acquiring digital platforms, or to integrate the online traffic resources of Internet companies.
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