Citic to Sell Broker Stake

SHANGHAI—Citic Securities Co., China's largest brokerage firm by assets, said Wednesday it plans to sell a majority stake in brokerage unit China Securities Co. to comply with a request from the country's securities regulator.

Citic Securities, a unit of Chinese financial conglomerate Citic Group, is seeking to resolve regulatory compliance issues related to its plans to expand into new businesses, including a pending investment banking tie-up with France's Credit Agricole SA, analysts said.

The brokerage said it plans to sell a 53% stake in China Securities for 8.59 billion yuan ($1.25 billion) after the China Securities Regulatory Commission requested that the firm sell down its stake to avoid competing with its units in the same area of business. Once the sale is completed, it will hold a 7% stake in the smaller brokerage.

The regulator has also been urging Citic Securities to reduce its stake in wholly owned China Asset Management Co. by July 1 to comply with the country's ownership rules for fund houses and avoid punitive measures.

Chinese regulations state that firms cannot hold stakes of more than 49% in mutual fund companies unless the fund companies are joint ventures with foreign partners.

Citic Securities said it plans sell the China Securities stake on an asset exchange in two batches, a 45% stake and an 8% stake to be sold simultaneously.

The company said it expects the disposal to reduce its consolidated revenue by nearly 30%, based on its revenue for the January-September period of 2009.

But the sale, if completed at the offering price of 8.59 billion yuan, would produce a sizable one-off profit for the brokerage, which said the original cost of acquiring the 53% stake in China Securities was 1.43 billion yuan.

Citic Securities and China CCB Investment Co. founded China Securities in 2005. China CCB holds 40% of the joint venture.

Citic Securities also said it aims to develop its buy-side business, including its private-equity investment and asset management operations, to offset the lost revenue from China Securities.

Write to Joy C. Shaw at joy.shaw@dowjones.com