China's CICC shares jump after plan to buy two rivals in $16 billion stock-swap deal

China International Capital Corp shares jumped as much as 10% on Thursday after it detailed plans to buy two rivals in a share-swap deal worth about $16 billion, potentially creating China's fourth-biggest investment bank by assets.

Shares of acquisition targets Dongxing Securities and Cinda Securities also surged.

State-owned CICC said the acquisitions would help broaden its business network, expand its client base and strengthen capital as it seeks to become a top-tier investment bank.

They would also answer a government call to build globally competitive investment banks through industry consolidation.

The acquisitions would create China's fourth-largest investment bank, with total assets of more than 1 trillion yuan ($142 billion), showed an estimate from Soochow Securities.

"The combined entity will have much bigger capital strength and will be more resilient operationally," China Merchants Securities said in a client note. The deals "could rekindle expectations of further industry consolidation," it said.

In an exchange filing late on Wednesday, CICC said it will issue 3 billion shares at 36.91 yuan ($5.24) each in exchange for all outstanding shares of Dongxing and Cinda.

That price is 6% higher than CICC's closing share price of 34.89 yuan on November 19, when trading of its shares was suspended pending details of the transaction.

The deal values Dongxing at 16.14 yuan a share, 23% above its market price of 13.13 yuan, and Cinda at 19.15 yuan, a premium of 8%.

CICC shares in Shanghai jumped 10% early on Thursday after the trading suspension was lifted, before paring gains to 5%. The bank is also listed in Hong Kong where its shares rose 4% on the resumption of trade.

Dongxing Securities shares jumped by their daily upper limit of 10%, while those of Cinda Securities climbed 5%.

All three companies are controlled by sovereign fund Central Huijin Investment.

The government has been eager for consolidation to foster globally competitive investment banks. Domestically, about 150 participants make up a $1.6 trillion industry.

CICC said the acquisitions would boost outlets by nearly 80% to 436, increase retail clients and strengthen business in southern Fujian and northern Liaoning provinces.

"The restructuring would help the company develop into a globally competitive, first-rate investment bank," CICC said. It also said it will "support China's capital market reform and high-quality growth of the securities industry".

-Beijing newsroom/Reuters