Yuexiu Still Seeks $944.2 Million Buyout of Local Brokerage

Guangzhou Yuexiu Financial Holdings Group Co., a city-government-backed financial conglomerate, plans this year to revive its proposed complete acquisition of a local brokerage in which it already has a minority stake.

The China Securities Regulatory Commission (CSRC) said on July 25 that it wouldn’t review Yuexiu’s plan to acquire the remaining stake in its 67.23%-owned Guangzhou Securities for 6.3 billion yuan ($944.2 million), citing “ongoing significant events.” China Business News reported earlier that Guangzhou Securities was involved in lawsuits related to the underwriting of bonds and new-share sales.

In Yuexiu’s first-half earnings report released last week, it said the company will continue to work to secure regulatory approval for the proposed acquisition, which would make Guangzhou Securities a wholly owned subsidiary of Yuexiu.

Yuexiu added that the deal, announced in December, could help expand financing channel for the brokerage, and upgrade Yuexiu as a publicly traded financial group that centers on securities business.

On July 19, Yuexiu said it valued Guangzhou Securities at 19.5 billion yuan, 75.26% higher than the brokerage’s book value of 11.1 billion yuan.

During the first six months of this year, Guangzhou Securities’ net profit dropped sharply by 80% to 96.1 million yuan from a year earlier due to higher costs on bond underwriting and market volatility. Revenue also fell 48.8% to 766 million yuan from a year ago.

Yuexiu amended the plan twice but still didn’t pass the regulator. Initially it planned to fund the deal with 500 million yuan in cash and the rest by issuing 438 million new shares at 13.16 yuan. In June, the company cut the placement price to 13.08 yuan per share but raised the number of new shares to be issued to 440 million shares, mainly to address the accounting impact of the 2016 dividend payment.

Contact reporter Dong Tongjian (tongjiandong@caixin.com)