Guangfa Securities Co, China's sixth-largest brokerage, is seeking a backdoor listing aimed at expanding its business as the country's securities industry expects a revival after a lengthy slump.

 

Guangfa, among about a dozen brokerages listed by regulators as the best performers in the industry, is seeking a stake in the Shenzhen-listed Yan Bian Road Construction.

 

Guangfa is in talks with Yan Bian's largest shareholder, Jilin Aodong Medicine Industry Group Co Ltd, to buy a 27.3-percent stake in the construction company, Yan Bian and Jilin Aodong said in separate statements published on the Shenzhen stock exchange website.

 

"Our company's controlling shareholder Jilin Aodong is talking with Guangfa Securities about the possibility of the brokerage buying our company's shell for an indirect listing," Yan Bian said.

 

Trading in the two listed companies will be suspended from Monday until the outcome of the talks is known, the statements said.

 

Yan Bian's shares closed at 8.06 yuan (US$1) on Friday after rising 21 percent over the previous two days on speculation about the Guangfa takeover.

 

Guangdong-based Guangfa Securities has set out a plan for expansion beyond a backdoor listing. It has also won regulatory approval to take over troubled First Securities Co.

 

"Guangfa will buy First Securities' securities-related assets, but will not assume its debt and operational losses," Guangfa said in a statement published in the official Shanghai Securities News yesterday.

 

Experts noted that securities firms are currently seeking backdoor listings and mergers as the industry anticipates a recovery after the government reshuffled the sector following years of slump.

 

"After years of restructuring, securities firms have been shut down or forced to merge, and those surviving securities firms are taking strong measures to expand their business and increase competence, especially after the government lifted the year-long ban on IPOs, which bring securities firms' underwriting business back," Zhang Qi from Haitong Securities said.

 

Last month Hong Yuan Securities Co Ltd, one of only two listed brokerages in China, said China Jianyin Investment Holding Co, which is controlled by the investment arm of China's central bank, would buy a controlling stake in it.

 

Industry sources revealed that another well-performing securities firm, Changjiang Securities, was in talks with Wuhan East Lake High Technology Co Ltd to buy a stake in the latter's equity to seek a backdoor listing.

 

Yesterday another leading domestic securities firm, Shanghai-based Haitong Securities, announced that it had reached a memorandum of understanding (MOU) with ABN AMRO to explore tie-ups across a wide range of businesses, such as corporate finance advisory services, asset securitization, cross-border capital raising, financial market products and brokerage activities.

 

Sources said that Dutch banking giant ABN AMRO is eyeing a potential stake in Haitong Securities. Potential foreign buyers, including ABN AMRO, Bank of Montreal and JPMorgan Chase & Co, have approached Haitong since last year.

 

According to Reuters, a Shanghai-based financial industry executive said, "the MOU seems a signal that the two parties are keen on a sort of partnership at the moment and this also increases the possibility of an eventual purchase deal, though now is not good timing."

 

The executive, who declined to be identified, said that although ABN AMRO had completed initial due diligence for the possible purchase of a stake last year, talks were stalled over the possible price and size of the deal.

 

(China Daily June 6, 2006)