BEA to set up fully licensed China securities JV

Like HSBC before it, Bank of East Asia is teaming up with Shenzhen Qianhai Financial Holdings.

Bank of East Asia is joining forces with Shenzhen Qianhai Financial Holdings to set up a fully-licensed securities company in China, mirroring last month's move by HSBC with the same partner.

BEA and Qianhai Financial Holdings, the financial arm of the local government, said on Monday that they have entered into an agreement to establish a joint venture in the Qianhai economic zone of Shenzhen in China’s southern Guangdong province.

It is the second such deal under the aegis of a long-running but recently-revised free trade agreement between Hong Kong and mainland China - the Closer Economic Partnership Arrangement (CEPA).

BEA will hold a 49% stake in the new firm, which once approved will engage in providing a full range of investment banking and securities services in China. Its mainland partner will take up the rest, a person from the bank told FinanceAsia

The new joint venture sees BEA, one of the largest local banks in Hong Kong, follow in the footsteps of HSBC, which last month also formed a fully licensed securities JV with Qianhai Financial Holdings, becoming the first bank from the territory to do so.

Most other securities JVs in China are limited to underwriting equity and bond issuers and cannot trade in China’s secondary markets, unlike the new businesses set up by BEA and HSBC.

“This joint venture will help diversify our business on the mainland. We will also be able to better support customers’ use of the capital markets to seek both international and cross-border financing,” Brian Li, deputy chief executive of BEA, said in a statement on Monday.

“Going forward, we will make full use of the opportunities arising from the liberalisation of China’s financial markets,” he said.  

New rules

The HSBC and BEA JVs come after the China Securities Regulatory Commission announced in August that it will open domestic capital markets to financial institutions from Hong Kong and Macau, allowing qualified firms to form JVs with mainland peers in a few designated cities and regions.

That follows the signing of Supplement X in 2013, one of several follow-on agreements to the mainland China-Hong Kong CEPA pact sealed in 2003.

Under the new rules, Hong Kong- and Macau-based investors can set up one fully licensed securities JV in each of Shanghai, Shenzhen, and elsewhere in Guangdong province with a controlling interest of up to 51%.

HSBC, which qualified via its unit Hong Kong and Shanghai Banking Corporation Limited, is Hong Kong-headquartered and funded and can take up the maximum 51% shareholding as part of its Shenzhen quota. 

BEA’s JV is slightly different even though it too will be based in the Qianhai district of Shenzhen. That's because it is using a separate quota directly assigned to the pilot financial reform zone. According to the CSRC, qualified financial institutions from Hong Kong and Macau are allowed to set up fully licensed brokerages in such areas but can only hold up to a 49% stake.

Set up in Hong Kong in 1918, BEA has conducted business in mainland China since 1920, when it opened its first branch in Shanghai. Today, the bank runs about 128 outlets across the country, its website shows.

BEA was among the first batch of foreign banks to expand into Qianhai, opening a sub-branch there in 2013.

Hang Seng Bank has also proposed to establish a majority-owned joint venture fund management company in Qianhai, again in collaboration with Qianhai Financial Holdings. The joint venture is still pending approval but is well placed to become the first fund manager formed under Supplement X of the CEPA.

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