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China's central bank will inject 2.5 billion yuan (US$308 million) into the country's third largest broker, Shenyin & Wanguo Securities Co, as part of a wider scheme to consolidate the brokerage sector and strengthen the competitiveness of domestic brokers, according to market sources yesterday.
Central Huijin Investment Co, the central bank's investment arm that focuses solely on equity investments in the nation's major financial institutions under the approval of the State Council, will offer the money and get a 33 percent stake in Shenyin & Wanguo.
Shenyin & Wanguo's losses in the first half of the year climbed to more than 3.8 billion yuan (US$ 469 million) from a loss of 177 million yuan (US$ 22 million) for all of last year.
The broker ranks third in the country in terms of stock transaction value, which was about 381 billion yuan (US$47 billion) last year. But it has still suffered losses due to heavy debts. Its net assets now stand at a negative 450 million yuan (US$56 million).
Huijin will charge interest of 3 percent and that interest is vital, said Dong Chen, a senior analyst at China Securities.
Usually money injected is free of interest. But this does not encourage brokers to behave soundly, the analyst said.
The bail-out is just one part of a broader move by the government to support the sluggish but important industry. Most of China's brokers are performing badly.
About 114 brokers on the mainland posted a combined loss of more than 15 billion yuan (US$1.84 billion) last year, the fourth consecutive bad year, according to the China Securities Association.
The market watchdog is now trying to reshuffle the sector by supporting good brokers and taking over the bad ones.
JIC is a wholly state-owned investment company that focuses solely on equity investments in the nation's major financial institutions under the approval of the State Council.
Central Huijin and JIC will act as the two main forces in the reshuffling of China's brokerages by injecting cash into pilot brokerages with capital difficulties.
In June, Central Huijin Corporation got approval from the State Council to inject about US$1.5 billion into China Galaxy Securities, one of China's biggest State-owned brokers.
Last month, CITIC Securities and JIC said they would join together to take over the debt-ridden China Securities, also a former market leader held by the Beijing Municipal Government.
Market sources said the central bank had prepared US$1.2 billion to either loan or inject money into the pilot brokers.
It is also said that the government planned to bail out several brokers in the third quarter of this year, mainly bourses with inadequate capital.
Other potential recipients of central bank support include Huaan Securities, which is setting up an investment joint venture with Merrill Lynch, the Shanghai-based China Fortune Securities, the Jinan-based Tiantong Securities, the Beijing-based China Minzu Securities and China Sci-tech Securities.
(China Daily August 4, 2005)
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