HONG Yuan Securities Co. unveiled Friday a proposal to be acquired by larger peer Shenyin & Wanguo Securities Co. in a deal with a potential value of 39.6 billion yuan (US$6.4 billion).

    The proposed tie-up — initiated by Central Huijin Investment Ltd., the domestic investment arm of China’s sovereign wealth fund and owner of controlling stakes in both companies — could potentially be the biggest such deal in the country’s securities sector.

    Hong Yuan will swap one A share for every 2.049 Shenyin A share should Hong Yuan shareholders approve, Hong Yuan said Friday. In total, the acquirer will issue 8.14 billion shares at 4.86 yuan apiece and plans to assume Hong Yuan’s listing in Shenzhen.

    Domestic media reported talks of the deal in October, which were subsequently denied by Shenyin’s Hong Kong-listed subsidiary, Shenyin Wanguo HK Ltd. Around the same time, Hong Yuan suspended the trading of its shares pending “restructuring.”

    Domestic securities firms are seeking to bolster capital and market share through acquisitions and equity sales as profitability dwindles. The Hong Yuan purchase is the biggest takeover in China’s financial industry, surpassing Ping An Insurance Group Co.’s US$4.3 billion acquisition of Shenzhen Development Bank Co. in 2011.

    “Deals such as this one are what regulators and management like to see happen,” said Chen Xingyu, a Shanghai-based analyst at Phillip Securities Research. “Creating large firms through mergers and acquisitions will give these Chinese brokerages an edge when facing foreign competitors as China further liberalizes its capital markets.”

    Total assets of China’s 115 securities firms — led in revenue by CITIC Securities Co. — climbed 20 percent last year to US$334 billion. (SD-Agencies)