[THE INVESTOR] Mergers and acquisitions among midsized brokerages will continue to shape the securities industry in the second half of 2016, following mega deals signed by top local players earlier.

After the big merger deals of Daewoo Securities and Hyundai Securities earlier this year and last year, M&A activities in the industry are expected to pick up due to deteriorating balance sheets.

“Brokerage houses will come under growing pressure to drive growth through M&As as their growth woe worsens,” said Park Yong-rin, Korea Capital Market Institute division head on financial industry. 

The number of securities companies declined from 62 in 2013 to 56 in 2015. “The number is not significant, compared to their deteriorating revenue.

Hi Investment & Securities is the latest that is being put up for sale.

Debt-ridden Hyundai Heavy Industries plans to sell its 85 percent stake in Hi Investment, which has an equity capital of 710 billion won (US$ )as of the end of March, within this year.

Potential buyout candidates include some brokerage houses that seek to become major investment banks by boosting their gross capital to over 3 trillion won.

Having more than 3 trillion won of capital is one of requirements to secure a license to become an investment bank operator in Korea.

Korea Investment & Securities, an affiliate of Korea Investment Holdings, can become the country’s third-largest brokerage firm if it consolidates with Hi Investment as its gross capital could exceed 4 trillion won. Shinhan Financial Group, which also has a securities unit under its wing, is showing interest in purchasing Hi Investment. 

“Bank holding companies that haven’t tapped into the brokerage market like DGB Financial Group and JB Financial Group may pay attention to the Hi Investment acquisition deal,” said Won Jae-woong, analyst at Mirae Asset Securities.

SK Securities is seeking potential buyers as its largest shareholder SK Holdings is required to divest all stakes in the brokerage by August 2017 to comply with fair trade laws.

Some other midsized firms are also close to completing their M&A deals.

Cape Investment will wrap up its deal to buy LIG Investment Securities this month as it received an approval from the financial authorities. Another firm Leading Investment & Securities recently selected CCK Partners as a preferred bidder.

By Park Han-na (hnpark@heraldcorp.com)