The restructuring scheme of Guangdong Development Bank, one of the country's 14 national commercial banks, is near completion, but approval of the scheme is still required from the provincial government of Guangdong, according to a Beijing News report on Tuesday.
The report quoted one of the bank's senior executives as saying that the restructuring agreement could be finalized as early as mid-November.
But the position relating to strategic investors is not known. Singapore's DBS Bank Ltd is believed to be the most likely candidate. However, other banks such as Deutsche Bank, Citibank, Carlyle Asia Partners, Societe Generale, and Huawen Group -- under the People's Daily conglomerate -- have also shown interest.
GDB hopes to transfer 51 percent of its shares to foreign investors, exceeding the current 25 percent stake ceiling allowed for foreign investment in Chinese banks.
This point, however, was denied by Yan Qingmin, a department director with the China Banking Regulatory Commission. Yan said last week that the banking watchdog will not raise the 25 percent stake ceiling in the short term, and neither will GDB.
Yan added that while current rules stipulate that a foreign financial institution can invest in a maximum of two Chinese banks, non-financial institutions have the option of investing more as a finance investor. Thus, it is impossible for foreign investor to hold more stakes in the bank.
This week, a group of interested investors are expected to run checks on some branches of the bank, probing into assets conditions and profitability, according to the newspaper.
The reported reshuffle framework is as follows: GDB will split its 30 billion yuan (US$3.71 billion) worth of non-performing assets with the Guangdong provincial government. New investors will then be introduced through capital increase and share expansion. It is also possible that the People's Bank of China, the country's central bank, will provide a loan.
Its obscure financial status makes it difficult to evaluate the risks of investment in the bank. But one insider says that all branches outside of Guangdong Province are profitable.
In September, Standard & Poor's, the international ratings agency, raised the bank's credit rating from CCCpi to Bpi. S&P's rating system goes from AAA, the top rating, to D, which means the company is in default or has gone bankrupt. The letters "pi" indicate that the ratings are based on publicly available information.
(China.org.cn by Tang Fuchun, October 27, 2005)