Citic Securities has moved a step closer to offloading a 51% stake in China AMC, the country’s largest fund management company, after the process received regulatory approval.

The transaction, once completed, will solve an issue that caused China AMC to put new product launches on hold since last January, since its 100% holding breached compliance rules set out by the China Securities Regulatory Commission (CSRC).

The regulator’s “1+1 rule” stipulates that a firm can hold no more than a 49% stake in one domestic fund management company and a minority stake in another.

China AMC’s assets under management (AUM) grew to Rmb224.2 billion ($34.5 billion) by the end of the first quarter this year. Citic Securities’ minimum asking price for the entire 51% stake is Rmb7.56 billion, sold to no more than five new shareholders. It would mean the minimum price-to-AUM valuation is 6.61%.

Last year, Mitsubishi UFJ paid a price-to-AUM of approximately 8.96% for a 33% stake in SWS MU FMC from BNP Paribas Investment Partners.

Anthony Skriba, project manager at consultancy Z-Ben Advisors, notes that 6.61% to gain access to China’s biggest asset manager might seem like a bargain, while noting that the size of the stake would have made the process of finding buyers more time-intensive.

He adds: “The fact that Citic Securities has voluntarily chosen to reduce its own holding to 49% suggests it was unable to find a foreign buyer willing to pay for the stake, and that smaller parcels of the firm will be purchased by domestic buyers.”

According to Chinese regulation, theoretically Citic Securities could have maintained ownership up to 75%, if it had found a foreign buyer to transform China AMC into a JV.

The non-compliant issue caused complexity for China AMC. Since being banned from launching new products, the FMC has seen its market share decline by 0.58%. The only mutual fund China AMC has launched since last year was an Asian bond fund, which was transformed from an existing segregated account product.

“This has been especially problematic for the firm, as late last year the CSRC opened additional product launch channels and allowed firms to launch multiple products simultaneously,” notes Francois Guilloux, director of regional sales at Z-Ben.

Assuming Citic Securities’ divestment occurs in a timely fashion, Z-Ben expects CSRC to allow China AMC to resume normal product launches soon.

“We expect China AMC to begin to rebuild its market share, and even potentially breach its own historical highs in the years to come,” the consultancy notes. “Other FMCs will need to redouble their efforts in the face of increased pressure from the top.”

China AMC declined to comment for this article.