Daiwa Returning to China in New Securities Venture

Japanese investment bank Daiwa Securities Group Inc. is planning a return to China after withdrawing four years ago, people familiar with the matter told Caixin.

Daiwa Securities, Japan’s second-largest brokerage firm behind Nomura Holdings Inc., joins a parade of international financial institutions seeking to set up new ventures after Chinese authorities loosened restrictions on foreign ownership in April. Others include the American investment bank JPMorgan Chase & Co., Nomura and Switzerland’s UBS Group.

Daiwa Securities signed a memorandum of understanding with Beijing State-Owned Capital Operation and Management Center to set up a securities joint venture, sources said. Daiwa will own 51% and Beijing State-Owned Capital, an investment vehicle backed by the municipal government, 49%.

Daiwa left China in 2014 when it terminated a joint venture with Shanghai Securities Co. because of disagreements with the Chinese partner and poor business success.

In April, China’s securities regulator issued new rules allowing foreign partners to take majority stakes in domestic securities companies, trusts and wealth management firms. It was a milestone in the country’s campaign to relax restrictions and lower barriers for foreign players in China’s financial services market.

“With a controlling stake, Daiwa Securities will have the say in the venture’s operation while Beijing State-Owned Capital mainly plays a role as financial investor,” said a person close to Beijing State-Owned Capital.

Daiwa Securities “is planning to grow this newly established company into our future business hub in China by prioritizing building cross-border business with our global network and experiences,” Daiwa Securities said earlier in a statement.

Nomura is expected to receive regulatory approval for a new venture with Shanghai government-backed Oriental International Co. as early as the end of the year, a person close to the matter said. Nomura will hold 51% in the new venture.

Daiwa Securities first tapped the Chinese market in 2003 by helping China Life Insurance Co. market its shares in Japan. In 2004, Daiwa Securities set up Daiwa SSC Securities Co. with Shanghai Securities, in which the Japanese firm held a 33% stake.

But Daiwa SSC’s business was slow. The company didn’t generate its first bond-underwriting business until 2007, and its first IPO came only in 2010. Daiwa SSC reported its only annual profit in 2010 with 820,000 yuan ($117,907). From 2006 to 2011, it amassed net losses totaling 83.4 million yuan.

As the partnership expired in 2014, Daiwa Securities sold its stake in Daiwa SSC to Shanghai Securities and withdrew from China.

Beijing State-Owned Capital is an investment company established in 2008. Its business focuses on managing and restructuring state-owned enterprises. As of 2017, the company had 2.5 trillion yuan in total assets and net assets of about 850 billion yuan. Its 2017 revenue stood at 960 billion yuan and profits at about 61.4 billion yuan.