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China takes over No 5 broker, cites mismanagement

BEIJING/SHANGHAI: In a rare move, regulators have seized control of China’s fifth-biggest brokerage, making China Southern Securities the highest-profile victim of a corruption crackdown.

The China Securities Regulatory Commission and the government of boom town Shenzhen — the brokerage’s base — had taken over the trading house on Friday, the commission said in a statement carried in major securities papers on Saturday.

The decision, which analysts said could shock the markets, had been triggered by “illegal and irregular management operations and disorderly management,” the commission said, adding it would launch an inquiry. The move was necessary “to protect the legal interests of investors and creditors.”

“Any illegal and irregular activities will be punished,” the market watchdog said, adding that board members and senior management had been suspended.

Analysts said the fall from grace of the prominent national player, once a source of pride for the go-go city bordering Hong Kong, would hammer markets when they re-opened on Monday.

“The take-over of heavyweight Southern Securities will be a bomb exploding in the market,” said an analyst at one of China’s top securities houses, speaking on condition of anonymity.

“It’s likely to upset the confidence of other brokerages, which are preparing to build positions at the start of the year.” Executives at Southern Securities and commission officials were not immediately available for comment.

Slump: China’s embattled securities sector is coping with a stock market that has slid 32 percent since peaking in mid-2001, hit by factors such as a large overhang of non-traded state shares. The benchmark Shanghai composite index notched its lowest close in four-and-a-half years on November 18.

Official figures show 98 of the country’s 131 securities houses made a combined loss of 4.1 billion yuan ($495.35 million) in the first nine months of 2003.

China Southern, as one of the most active houses and which had been in talks with Goldman Sachs and HSBC Holdings on securities ventures, is the most prominent victim of a government-led clampdown on the industry launched in 2001.

China typically asks better-managed brokerages to take over waning peers to avoid market volatility sparked by such closures. In 1996 Shenyin & Wanguo Securities was created via a merger between Shanghai Shenyin Secur-ities and Shanghai International Securities after the latter lost heavily in bond futures.

Southern Securities would be protected from creditors and continue operating normally, according to Saturday’s statement.

Founded in 1992, China Southern Securities is the country’s fifth-largest brokerage, with a registered capital of 3.45 billion yuan ($416.9 million). The government of Shenzhen is one of its three largest shareholders.

Talk of financial problems had plagued the securities house intermittently over the past two years, though company officials repeatedly denied such speculation.

They had rejected market talk it would file for bankruptcy and even urged authorities to prosecute those spreading rumours. —Reuters

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