Merrill Lynch and China's Hua'an Securities signed a memorandum of understanding yesterday in Hefei, capital of East China's Anhui Province, to establish a joint venture securities house in China.

Merrill Lynch will hold a 33 per cent stake in the proposed joint venture, according to a press release jointly issued by the two companies yesterday.

The deal is still awaiting approval from the China Securities Regulatory Commission (CSRC).

The planned venture is expected to have an initial registered capital of 800 million yuan (US$96.6 million). It will apply to CSRC to engage in the underwriting of A shares, brokerage, trading of bonds and mergers and acquisitions advisory.

Wang Yongping, chairman of Hefei-based Hua'an Securities, said the company can leverage on the global expertise of Merrill Lynch, which is a world-renowned company in the investment banking field.

Hua'an Securities, with a registered capital of US$206 million, is a medium-sized securities house that has 26 main brokerage branches in Anhui Province and a number of major domestic cities.

"China has long been a strategic market for Merrill Lynch and we are delighted to be working with Hua'an Securities to establish a domestic securities platform that will allow us to participate in the ongoing development of China's capital markets," said Raymundo Yu, senior vice-president and Merrill Lynch's Asia Pacific regional chairman.

Merrill Lynch has previous experience in China's asset management business and securities trading.

The company got a licence from CSRC at the end of 2003 to establish a joint venture fund management company with the Bank of China International China Limited and Bank of China International Holdings. They launched the venture last June.

Merrill Lynch is also a licenced qualified foreign institutional investor (QFII), which means it can trade A shares, bonds, mutual funds and other products approved by the authorities under the QFII programme.

Its latest attempt to enter the local investment banking business will further enrich its product line and service scale in China, analysts said.

China allows foreign companies to hold a maximum 33 per cent stake in joint venture securities firms.

But compared to other securities businesses, like asset management and QFII, the investment banking sector has lagged behind in terms of opening-up.

By the end of 2004, China was home to 13 fund management joint ventures and 27 QFIIs, but only four joint venture securities houses had been launched by that stage, according to CSRC statistics.

Merrill Lynch's entry follows a recent move by global investment bank Goldman Sachs, which announced early last December that it had received CSRC approval to establish a joint venture investment banking firm in China together with a newly launched Chinese company, Beijing Gao Hua Securities, which is run by mainland investment banker Fang Fenglei.

Source: China Daily