ABN AMRO signs deal with ChinaÆs Haitong Securities

But the chances of a takeover by the Dutch bank look slim.
In short statement issued Monday ABN AMRO announced that it had signed a memorandum of understanding with ChinaÆs fourth-largest broker (by income in 2004), Shanghai-based Haitong Securities, to explore partnerships in securitisation, international capital raising, advisory and brokerage.

The agreement reflects the eagerness of many foreign financial services providers to penetrate China.
The attractions of Haitong are obvious. ItÆs got a relatively good reputation; it is undergoing restructuring; and it is established in the wealthiest part of China û close to the bustling private companies of Jiangsu and Zhejiang as well as to the Shanghai stock market, currently on a bull run.

But Zuo Xiaolei, chief economist at Galaxy Securities in Beijing, is sceptical that the deal will lead to the acquisition of a majority or even a minority stake by the Dutch bank: the dream of foreign players eager to access ChinaÆs gradually reforming stock and bond market.

ôItÆs true that the Chinese securities industry, including Haitong, is facing problems and need foreign assistance. But Haitong is one of the biggest securities houses in China,ö points out Zuo.

Zuo says all the securities houses know that the foreign party will want implicit or explicit management control û and that the larger players will be fiercely reluctant to grant it.

ôItÆs interesting they did not mention IPOs in the statement, which is the most lucrative area. Haitong wonÆt want to share that with foreign parties,ö she says.

That could provide a challenge to Qiu Zhizhong, chairman of ABN AMRO, China, who recently announced his aim to beef up the bankÆs investment banking operations with China-related counters.
Some specialists believe Haitong has no intention in selling out to ABN and that the company is starting a partnership with ABN AMRO for its own ends û namely international expansion.

ôThe biggest Chinese securities companies donÆt want to miss out on the opportunities offered by the qualified domestic institutional investor schemes, for example, as a chance for extra profit and international experience,ö says one specialist, referring to the scheme permitting Chinese institutional investors to invest assets abroad.

ôHaitong is just as keen to use ABN as a bridgehead into Hong Kong as the latter is to use Haitong as a bridgehead into China," he adds.

The regulations concerning foreign companies investing in Chinese companies stipulate that they may not take more than a 33% stake in a joint venture. Unusually, UBS has recently taken a 20% stake in Beijing Securities, but it is a small, troubled company and the regulator has specified that the deal is experimental. Goldman Sachs has also carried out a convoluted scheme whereby it has effective control of a JV, Goldman Gaohua Securities, by funding the JV's Chinese counterpart, Beijing Gaohua, headed by Fang Fenglei and five other investors.

ABN AMRO currently has a 49% stake in a fund-management joint venture, ABN AMRO TEDA Fund Management. Its partner is Tianjin-based Northern International Trust & Investment.

¬ Haymarket Media Limited. All rights reserved.