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By Julie Zhu
HONG KONG (Reuters) - State-owned China International Capital Corp (CICC) is set to merge with its peer China Galaxy Securities, said five sources, in a deal that would create the country's third-largest brokerage with $193 billion in assets.
A combination of CICC and Galaxy, which would mark the second mega merger in China's $1.6 trillion securities industry in a matter of months, has secured backing from Chinese authorities in recent weeks and could be announced in the coming weeks, said the sources.
Hong Kong and mainland-listed shares of CICC and Galaxy rallied on Wednesday after the Reuters report on the merger plan.
CICC and Galaxy, which count sovereign wealth fund China Investment Corporation (CIC) as their biggest shareholder and parent, seek to merge via a share swap, said two of the sources. Financial details of the planned transaction were not immediately known.
The combined entity, with 1.4 trillion yuan ($193 billion) in total assets, is set to surpass Huatai Securities to become China's third-largest brokerage. The planned deal will require regulatory and shareholder approvals, said the five sources, who have knowledge of the matter.
All the sources declined to be named as they were not authorised to speak to the media.
CICC and Galaxy said in separate filings late on Wednesday that neither of them had received any information from the government, regulators or controlling shareholder regarding the reported merger.
The State Council Information Office and the China Securities Regulatory Commission did not respond to Reuters' requests for comment. CIC declined to comment.
The merger would come amidst Beijing's efforts to establish large and competitive domestic investment banks as a counterweight to global banks such as Goldman Sachs and Morgan Stanley that have in recent years taken full control of their China businesses and are eyeing a bigger market share.
The merged entity is expected to be in a stronger position to navigate the challenging conditions at home at a time when the fragmented industry's prospects have been clouded by a stubbornly slowing economy, market weakness, and regulatory tightening in the financial sector.
If approved, it would be ranked after long-time industry leader Citic Securities and the combined Guotai Junan Securities-Haitong Securities in terms of total assets in the industry.
Shanghai-listed shares of CICC and Galaxy surged by their 10% daily limit on Wednesday, while the two brokerages' Hong Kong stocks advanced too, up 19% and 17% at the market close, respectively.