UBS explores China stake swap to gain full control of UBS Securities Co

UBS Group AG is contemplating whether to acquire complete ownership of its China platform by engaging in a stake swap deal with a Beijing government investment fund, Bloomberg News reported.

The proposed deal involves UBS buying out its remaining 33 per cent stake in UBS Securities Co. from Beijing State-Owned Assets Management Co.

In return, UBS plans to divest its entire 51 per cent holding in Credit Suisse Securities (China).

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This possible transaction comes during a competitive bidding process for Credit Suisse's investment bank in China, with major players like Ant Group Co. and Citadel Securities LLC showing interest.

UBS is positioning itself to outmanoeuvre formidable competitors like Citadel Securities, known for its prowess in market-making and trading execution.

The Zurich-based bank has been looking to sell its stake in the Credit Suisse venture after assuming control of its smaller Swiss counterpart following its collapse last year.

Chinese regulations prohibit a foreign entity from holding majority stakes in two domestic brokerages simultaneously, prompting UBS's decision to divest its Credit Suisse holding.

While UBS has previously expressed interest in increasing its ownership to 100 per cent, the Beijing government has been hesitant due to the promising growth and earnings prospects of the onshore business.

UBS has controlled 67 per cent of UBS Securities since 2022.

The current stake swap proposal indicates UBS's innovative approach to navigate regulatory constraints while optimising its business interests in China.

Both UBS and Citadel Securities are looking through the regulatory complexities in their pursuit of the Credit Suisse Securities unit.

The Chinese government may prefer a foreign buyer over a state-owned entity to assume control of the foreign-owned brokerage.

This preference is associated with China's broader objective to open up its financial sector and consolidate the overcrowded brokerage industry.

The ongoing tensions between the US and China could pose challenges for Citadel Securities, but recent diplomatic gestures, including a dinner hosted by President Xi Jinping for American business leaders, suggest a potential thaw in relations.

Citadel Securities is looking to strengthen its presence in China by expanding its operations across asset management, brokerage execution, financial advisory, and market-making.

UBS has set an asking price of around 2 billion yuan ($278 million) for the complete Credit Suisse China unit, inclusive of the stake held by its local partner.

Citadel Securities had previously submitted a bid ranging from 1.5 billion yuan to 2 billion yuan, which was reportedly lower than an offer made by Ant Group.

Before Credit Suisse's collapse, the Swiss bank had agreed to acquire the remaining 49 per cent stake in its Chinese venture for 1.14 billion yuan, valuing the firm at approximately 2.3 billion yuan.

However, this agreement was nullified following UBS's takeover.

(With inputs from Bloomberg)