Jan. 25, 2007 (China Knowledge) – Changjiang Securities may become the fourth brokerage company to list through its acquisition of a listed subsidiary of Sinopec <386>.

The subsidiary, Shenzhen-listed Shijiazhuang Refining & Chemical Co. <000783>, will issue 1.44 billion new shares to Changjiang’s shareholders, who will control 86% of the merged company and the rest of the shares will be held by the refining unit.

Shijiazhuang Refining will be bought as a shell company that will absorb the brokerage’s assets, debts and operations, and then renamed to Changjiang Securities. Sinopec, which currently owns 79.7% of Shijiazhuang Refining, will purchase all the unit's assets and assume its debt before the transaction.

The refining unit will buy back Sinopec's 920.4 million shares for RMB 1.00, then retire them.

Backdoor listings have helped brokerages to skirt regulations that require three successive years of profit to before they could launch an initial public offering. Changjiang Securities is planning to raise capital through the public offering in order to survive the current phase of consolidation in the industry.

Besides, Sinopec will stand to benefit from this acquisition although it does not make any profit from disposing of its subsidy – the petrochemical company has seven subsidiaries which have not undergone any share reforms and their losses would look bad on the financial performance of the company in its consolidated report. This is mainly why Sinopec is eager to dispose of these subsidiaries.

Although Sinopec can dispose of the subsidiaries by a buy back, or mergers and acquisitions, selling them off is the most convenient way because it need not utilize capital to buy or acquire the shares held by other shareholders.