China's flagship grid company, the State Grid Corp of China (SGCC), is likely to invest 660 million yuan (US$82.5 million) to buy a 55 percent stake in V-Sun Securities, saving the brokerage from closure as the industry is reshuffled.

 

The SGCC, by paying around US$82.5 million to buy a 55 percent stake in the Shenzhen-based brokerage, will replace Jinan Yingda International Trust Company to become the brokerage's major shareholder, according to Zhao Wen'an, director of V-Sun Securities, who revealed the plan at the firm's mid-year conference.

 

Zhao said that the SGCC had paid 360 million yuan (US$45 million) for the brokerage to pay back the money it had embezzled from clients' deposits.

 

A few smaller investors will also invest a combined 500 million yuan (US$62.5 million) to buy the remaining stakes in the brokerage, according to the director.

 

The new injection of capital will help the brokerage's registered capital to expand from its current 100 million yuan (US$12.5 million) to around 1 billion yuan (US$125 million) to reach the net capital requirement set by the China Securities Regulatory Commission (CSRC), saving the troubled firm from closing down due to insufficient capital.

 

"As the new shareholder is a strong power firm, with such a restructure V-Sun Securities will be able to become one of the qualified firms entitled by the CSRC," an official from the CSRC's Shenzhen Regulatory Bureau who declined to be named told China Daily.

 

"The brokerage is one of the few troubled brokerages in Shenzhen which is actively seeking restructure. We expect such a restructure will minimize its risks," he said.

 

The securities house was established in April 1996.

 

Jinan Yingda International Trust Company and Xiangcai Securities, two companies held by Shandong Electric Power Corporation, respectively own 40 percent and 20 percent of the brokerage's shares.

 

Sources said that poor performance had pushed the Shandong Electric Power Corporation to quit the firm as it had suffered years of loss on its brokerage business due to the sluggish market.

 

The reshuffle of the industry by the securities regulator has prompted troubled securities firms to busy themselves restructuring and seek support from local governments and major shareholders.

 

The CSRC had planned to halve the number of securities brokerages by the end of the year. Only around 50 qualified brokers will survive in the market, the others will have to quit trading or be purchased, He Jiawu, a director of the Securities Association of China (SAC), told China Daily earlier.

 

The CSRC and the SAC have so far qualified 32 brokerages, leaving around 90 firms to compete for the last 18 available qualifications.

 

V-Sun Securities aims to finish its restructure within the year before entering a period of rapid growth in the next two or three years, ultimately planning to list in five years, the firm said in a statement on its website.

 

(China Daily August 8, 2006)