Guoyuan Securities Co has gained regulatory approval to take over Shenzhen-listed Beijing Huaer Co for a back-door listing, becoming the latest in a raft of domestic brokers to tap pubic funds for growth.
Huaer has been given approval to issue 1.36 billion new shares to existing shareholders of Guoyuan in exchange for the stake it holds in the broker, the listed company said in a statement to the Shenzhen stock exchange today.
The move means that shareholders of Guoyuan can swap each of the broker's stocks they own for 0.67 of a share of Huaer, according to the statement. After the stake transfer, Huaer will be renamed Guoyuan Securities as a listed firm.
As part of the deal, Huaer will also sell all the assets and liabilities to its current largest shareholder Beijing Eastern Chemical Co, a unit of China Petroleum & Chemical Corp, in a bid to become a "clean'' listing shell.
Guoyuan charted gross revenues of 1.74 billion yuan (US$232 million) in the first half of 2007, up 533 percent from the same period last year. First-half net profit jumped 217 percent to 968 million yuan.
Huaer shares last traded at 13.36 yuan on March 26 before the firm halted trading due to an announcement on the back-door listing plan by Guoyuan. Since then, the benchmark Shenzhen Composite Index has jumped by more than 80 percent.
"Guoyuan derives most of its revenue from securities brokering and proprietary trading, which largely depends on stock market conditions,'' said Shao Ziqin, a Ping An Securities Co analyst, in an earlier note. ``We expect its second-half performance to lag that of the first half.''
Chinese authorities are encouraging stronger domestic brokers to list publicly to raise funds for expansion and improve corporate governance before the nation further deregulates the market to foreign players.
The China Securities Regulatory Commission has approved plans by Haitong Securities Co, Northeast Securities Co and Changjiang Securities Co to conduct back-door listings this year. Haitong and Northeast have already made their trading debuts.