FAST NEWS: Guotai Junan to merge with Haitong to create new leading brokerage

The Latest: Guotai Junan Securities Co. Ltd. (2611.HK; 601211.SH) announced Thursday it plans to merge with Haitong Securities Co. Ltd. (6837.HK; 600837.SH) via a share swap, while Guotai Junan will also issue new Shanghai-listed A shares for ancillary fundraising.

Looking Up: Both companies said the reorganization is conducive to building a first-class Chinese investment bank and will benefit the domestic securities industry.

Take Note: The proposed merger requires a wide range of approvals, including from regulators, each company’s board and their shareholders, and could be derailed by failure to get any of those.

Digging Deeper: Guotai Junan and Haitong are both controlled by the Shanghai State-owned Assets Supervision and Administration Commission. According to last year’s financial reports, Guotai Junan’s total assets amounted to 925.4 billion yuan ($130.5 billion), while Haitong’s were 754.6 billion yuan. Their combined assets would reach 1.68 trillion yuan after the merger, surpassing the 1.45 trillion yuan of current industry leader Citic Securities (600030.SH). The merger is part of plans to reform the brokerage sector by the government, which has released new guidelines to encourage such M&A and other industry restructuring. Analysts predict such M&A will accelerate this year.

Market Reaction: Guotai Junan and Haitong both announced trading halts of their Shanghai- and Hong Kong-listed shares pending further announcements.

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