Meritz Securities absorbs affiliate

Meritz Securities announced late Wednesday that it decided to take over its affiliate Meritz Capital for 382.6 billion won ($325.2 million) in a move that will increase Meritz Securities’ capital to 2.2 trillion won.

The increased capital will make Meritz the country’s eighth largest brokerage house.

The deal would turn Meritz Capital, a company specializing in the rental and installment financing business, into the securities company’s wholly owned subsidiary through a stock swap.

Market watchers believe that the move is the latest in Meritz’s efforts to boost its size so that the company could be entitled to engage in a wider range of financial businesses.

Last August, the Financial Services Commission allowed securities companies to engage in a wider range of investment banking businesses depending on their size to boost the sector’s sophistication in cross-border deals and corporate financing.

Under the new rule, companies with 3 trillion won in capital will be entitled to add brokerage services of unlisted shares among different companies.

“The stock swap will increase Meritz Securities’ capital to 2.2 trillion won,” said Kim Tae-hyun, an analyst at Kiwoom Securities.

“It is a positive sign since the deal would allow Meritz to become a comprehensive financial company.”

Mertiz Securities has been on track to grow through an acquisition and a capital increase by issuing new stocks.

It acquired I’M Investment & Securities in June 2015, following a capital increase worth 414.1 billion won last August.

Meritz Securities said that the stock swap ratio is 1:2.5232069 between the company and Meritz Capital.

Kim said that with the acquisition of the affiliate, Meritz needs to improve its risk management.

“The decision would not have a great impact on the stock valuation of Meritz Securities,” he said, “but risk management becomes more important because it now handles debt instruments and the lending business.”

BY PARK EUN-JEE [park.eunjee@joongang.co.kr]