(Yicai) Oct. 10 -- Shares of Guotai Junan Securities and Haitong Securities surged after the two brokerage giants revealed the terms of their proposed mega-merger.

Guotai [SHA: 601211] and Haitong [SHA: 600837] soared by their 10 percent daily trading limit in Shanghai today, while their Hong Kong-listed stocks [HKG: 2611; HKG: 6837] rocketed 55 percent and 95 percent, respectively.

Trading in the shares had been halted since Sept. 6, missing the runup in Chinese stock markets that began on Sept. 24 after the government set out new measures to boost the economy.

Guotai, the larger of the two Shanghai-based brokers, will issue A-shares and H-shares, those traded in the Chinese mainland and Hong Kong, to Haitong shareholders at a ratio of 0.62 to 1, they announced yesterday. After the merger, Haitong will be delisted.

The new entity resulting from the combination will have assets of CNY1.68 trillion (USD237.1 billion) and net assets of CNY330 billion (USD46.6 billion), based on figures in their 2023 earnings reports. That would place it ahead of Citic Securities as China’s largest brokerage.

The merger will create a world-class investment bank in Shanghai that will benefit from the city’s status as an international financial center, an industry insider told Yicai. It will also enable the sharing of professional capabilities and client resources, enhance customer service, and improve operational efficiency, the person added.

Guotai also plans to issue an additional 626 million shares at CNY15.97 apiece to Shanghai State-Owned Assets Operation, an affiliate of its largest investor Shanghai International Group, for CNY10 billion (USD1.4 billion). That will go to replenish work capital, repay debts, and raise funds for the merger.

After the merger and private placement, SIG and its affiliates will see their combined stake in Guotai fall to 20.4 percent from 33.4 percent, while remaining the largest shareholders. SIG is a financial asset manager under the Shanghai government.

Haitong has no actual controller, but its largest shareholder is Shanghai Guosheng Group, a state-owned capital operation platform also under Shanghai’s government.

Editors: Tang Shihua, Futura Costaglione