CITIC Securities Co Ltd, the country's top-ranking brokerage in terms of gross profits, said yesterday it will acquire a 40.7 percent stake in the fund management company China Asset Management Co Ltd, also known as Huaxia.

 

The equity transaction will make CITIC Securities the controlling shareholder of Huaxia.

 

Set up in 1998, Huaxia has evolved into one of the most competitive fund companies in China with 8.56 percent of the market share and net assets valued at 40.2 billion yuan (US$5.0 billion) in 2005.

 

Huaxia currently manages six open-ended funds, five close-ended funds and an exchange-traded fund. The total size of the funds under its management was calculated at 41.8 billion units in the fiscal year of 2005, trailing behind China Southern Fund Management Co Ltd and Hua'an Fund Management Co Ltd with 53.0 billion units and 44.5 billion units respectively.

 

Since CITIC Securities also holds a 49 percent controlling stake in another fund company, CITIC Fund Management Co Ltd, it is believed by many that CITIC Securities would merge the two in the near future, which would inaugurate consolidation in the country's fund management industry.

 

According to rules on securities brokerages investing in fund management companies issued by Chinese regulatory authorities, finance institutions are not allowed to take a controlling stake in more than one fund management company.

 

Cheng Boming, senior official of CITIC Securities, responded to the speculated merger by saying: "We would like to build a CITIC brand in China's fund industry," the China Securities Journal reported.

 

If merged into one, the new fund company would account for 10 per cent of the market in China's fund management industry.

 

"It is found that sales performance of mutual funds are positively related to their size and branding. The bigger a fund is, the more sales it can make. As there exists huge disparity in the size, quality and performance of the mutual funds available in the market, consolidation of the industry is only a matter of time," said Lu Xiaodong, a Guotai Junan Securities analyst.

 

There are 52 fund management companies in the Chinese mainland, including 18 joint ventures. The size of the funds managed by those companies range from as high as 50 billion units to as low as 250 million units. CITIC Fund Management Co Ltd was ranked 14th.

 

The industry has had losses in the past couple of years. In 2004, the overall increase in net assets was about minus 6.8 billion yuan (US$850 million), according to WIND financial data service. In the first two months of this year, 40 billion units of open-ended funds had been redeemed, showing a lack of interest from investors.

 

Of the 40.7 percent stake CITIC Securities is to purchase, 35.7 percent comes from the Beijing State-owned Assets Management Co Ltd and 5 percent from Beijing Securities Co Ltd.

 

CITIC Securities intends to pay no more than 330 million yuan (US$41.3 million) in total, the company said yesterday in a filing to the Shanghai Stock Exchange, where it is listed.

 

(China Daily March 30, 2006)