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Shanghai Exchange raises questions on CITIC Securities/Guangzhou Securities deal

The Shanghai stock exchange raised concerns about CITIC Securities Co. Ltd.'s planned acquisition of Guangzhou Securities Co. Ltd., including the deal price given Guangzhou Securities' previous loss.

CITIC Securities had agreed to acquire a 100% interest in Guangzhou Securities from Guangzhou Yuexiu Financial Holdings Group Co. Ltd. for a consideration of up to 13.46 billion yuan. The exchange questioned the amount, pointing out that Guangzhou Securities' net profit had significantly decreased to 964 million yuan and 239 million yuan in 2016 and 2017, respectively, while the loss for the eleven months ended Nov. 30, 2018, amounted to 184 million yuan. CITIC Securities was asked to explain the significant change in net profit.

The exchange also asked if previous self-regulatory measures imposed on Guangzhou Securities would negatively impact CITIC Securities' operations. Guangzhou Securities was under investigation in 2016 for negative acts and was again placed under self-regulatory measures in 2018 for violating an act against unfair competition.

The exchange further asked about the deal's impact on CITIC Securities' assets and employees, and the potential risk relating to loss of customer and labor dispute.

CITIC Securities has until Jan. 22 to address the issues. The company said it will submit a reply on time.

As of Jan. 15, US$1 was equivalent to 6.76 Chinese yuan.