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Goldman Sach seeks 100% ownership of China JV

(ATF) Goldman Sachs has applied to take 100% ownership of its Chinese joint venture (JV) and has reached an agreement to buy the 49% of Goldman Sachs Gao Hua Securities that it does not already own. 

Goldman is the first global bank to apply to take full ownership of a Chinese securities firm. Its move that comes in the wake of approval by regulators in March of a bid to take majority ownership of the joint venture.

Competitors including JPMorgan and Morgan Stanley are also increasing their stakes in Chinese joint ventures, as are European banks such as HSBC and UBS.

Goldman’s securities JV will be renamed Goldman Sachs (China) Securities Company Ltd if regulators approve the application to take full ownership.

“One hundred percent ownership of our franchise on the mainland represents a significant commitment to and investment in China, outlined in our China strategic plan. This focuses on growing and strengthening our existing China businesses, expanding our addressable market and investing in talent and technology,” said a memo to staff dated Tuesday December 8 from Goldman chief executive David Solomon, president John Waldron and chief financial officer Stephen Scherr that was seen by ATF.

“These efforts coincide with ongoing reforms underway in China’s capital markets, continued robust economic growth and the expanding needs of increasingly sophisticated clients,” they added.

16-year partnership 

The move follows a 16-year partnership in China with Beijing Gao Hua Securities for the US investment bank, which began its push into the country in the late 1990s under then senior partner Jon Corzine.

The joint venture that Goldman now plans to take over completely was set up in 2004, with Goldman owning 33% and Beijing Gao Hua Securities owning 67%.

Gao Hua was founded by Fang Fenglei, a veteran Chinese banker who built on a career at state-owned commercial banks to help set up China International Investment Corp (CIIC), China’s first version of a Western investment bank in the 1990s. 

Fang currently heads private equity firm Hopu Investments, which he founded, and remains chairman of Gao Hua.

CIIC was set up in partnership with Morgan Stanley, which is among the US banks currently seeking to increase their presence in China by building greater stakes in local securities firms.

European firms including HSBC and UBS are also steadily increasing their holdings in Chinese joint ventures.

In March Morgan Stanley joined Goldman in being granted permission to take a majority stake in a Chinese joint venture, and increased its ownership stake in Huaxin Securities to 51% from 49%.

Analysts will now wait to see if Morgan Stanley follows Goldman in seeking to take 100% control of its Chinese securities JV.

JPMorgan is currently the US bank with the greatest ownership share of a joint venture in China, after it raised its stake in asset manager China International Fund Management to 71% in November. 

Goldman’s management memo confirmed that a definitive agreement has been signed to take 100% control of Goldman Sachs Gao Hua Securities, but did not give a price.

The JV generated revenue equivalent to just under $80 million in 2019, up 14% from the year before, from activity including underwriting one IPO and seven bond deals.

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Jon Macaskill

Jon Macaskill has over 25 years experience covering financial markets from New York and London. He won the State Street press award for 'Best Editorial Comment' in 2016

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