S&P Global Ratings does not expect Haitong Securities' (HKG:6837, SHA:600837) losses to prevent its proposed merger with Guotai Junan Securities (HKG:2611, SHA:601211), according to a Monday release.

Haitong has been incurring losses from its legacy Hong Kong portfolio, which has pressured its earnings since 2022, S&P said.

However, the company's parent-level profits are recovering and a faster cleanup of its Hong Kong portfolio will provide solid ground for the merged entity, according to S&P.

The rating agency estimates Haitong to have incurred a consolidated loss of about 1.4 billion yuan in Q3, as opposed to Guotai Junan's consolidated net income of about 4.6 billion yuan in the same period.

The merger will significantly benefit Haitong Securities given Guotai Junan's solid credit profile, S&P said.

The Shanghai government-backed merger is a strategic move to create a global investment bank and to strengthen the city's position as an international financial hub, S&P said.

The rating agency expects the merger to create an entity with the same creditworthiness as Guotai Junan, supported by its robust capitalization.