Macquarie said to be in final talks for China joint venture

Macquarie Group Ltd. is in advanced talks to create a majority-owned securities joint- venture firm in China, according to people familiar with the matter, the latest international bank seeking to establish itself in one of the world’s biggest markets.

Sydney-based Macquarie is drafting a final agreement with two Chinese conglomerates, said the people, declining to name the companies. It plans to form a three-way venture in Shanghai, and will submit its application in the next couple of months, the people said, asking not to be identified because the plans aren’t public. Macquarie would take a 51 percent stake in the JV, the people said.

Allowing majority foreign ownership of securities joint ventures is a key part of China’s financial opening. The closed nature of the country’s USD40 trillion financial sector has been a sore point for international firms and politicians, and one that policy makers in Beijing have been slowly working to address. On Friday, they granted UBS Group AG the first approval for overseas majority control of a securities JV. Nomura Holdings Inc. and JPMorgan Chase & Co. have also applied. A Macquarie spokeswoman declined to comment.

Macquarie officials decided to move ahead with the JV after rule changes earlier this year allowed foreign firms to partner with companies outside the brokerage industry, said the people. The new regulations removed concerns that overseas companies looking for JV partners might be forced to buy stakes from existing brokerages at high prices, one of the people said.

Foreign companies that team up with non-securities firms to start a joint venture need at least two local partners, according to the rules. Such a setup can make it easier for the foreign entity to exert greater control.

Macquarie operates an asset management business in China, working with local insurance companies and sovereign funds to help them invest offshore. It also works in the infrastructure and real estate sectors and advises on cross-border deals.

If the Australian firm finalizes its plans, it would be the second time it’s tried to enter China’s securities industry. In 2008, it signed a pact with Hengtai Securities Co. only to cancel the agreement because of concerns over management control and prices, said one of the people familiar with the matter.

Macquarie also created a trust company in 2009, selling its entire 19.9 percent stake six years later. The venture, which had initial capital of 300 million yuan ($43.5 million), aimed to offer yuan-based products and arrange domestic debt and equity financing. Cathy Chan, Bloomberg