Citigroup's bid to buy a stake on China's Guangdong Development
Bank is hanging in the balance as China appears unlikely to permit
foreign investors to buy controlling stakes in its small and
medium-sized banks.
A source close to the banking regulator said China was unlikely
to loosen its control of the banking sector which currently
restricts foreign investment to a maximum of 25 percent equity and
individual investors capped at 20 percent.
"The case of Guangdong Development Bank has been looked into
many times by the China Banking Regulatory Commission (CBRC) and
other related administrations and it's hard to break the present
restrictions on foreign strategic investor issues," CBRC said in a
letter to the Guangdong Municipal Government.
The Guangdong Development Bank has 26 branches in south China's
Guangdong Province and is heavily in debt.
The bank's situation is believed to have prompted its owner, the
provincial government, to support the foreign investment limit
being waived for this deal but top-level approval is also needed
and it seems the central government is not willing to break the
current rules.
Citigroup's spokeswoman in Shanghai, Marine Mao, said the bank
had no comment. The world's leading bank and its local partners bid
US$3 billion for an 85 percent stake in the Guangdong Development
Bank in December.
An offer made by competitors, France's Societe Generale and
China's Ping An Insurance (Group) Co, was less.
Earlier the Shanghai based, China Securities News,
reported that Jiang Dingzhi, vice-president of CBRC said at the Boao Forum that CBRC had no plans to adjust the
restrictions on foreigners' equity holding in the bank sector and
wouldn't be changing the policy in the near future.
"The Guangdong Development Bank restructuring solution is being
studied," the paper quoted Jiang as saying.
China has introduced foreign strategic investors to its banking
sector as it believes their?technological expertise and
corporate governance standards are as important as the cash they
bring to the banks.
China Construction Bank launched a US$9.2 billion IPO in Hong
Kong last October and the Bank of China is believed to be planning
to raise about US$8 billion in a Hong Kong IPO in May.
The Industrial and Commercial Bank of China, the country's
largest lender, hopes to follow by the end of the year with an IPO
that bankers say could raise US$10 billion or more.
All three lenders have sold shares prior to their listings to
foreign strategic investors to access their expertise.
However, criticism has mounted, with some saying China is
selling stakes in the country's banks too cheaply and counting too
much on foreigners.
Following the criticism, Premier Wen Jiabao, said on March 14 that the Chinese
Government had to keep control of state-owned banks to minimize the
risk of losses while financial systems were being reformed.
If Citigroup is successful with the bid it would become the
first overseas investor to buy control of a state-owned bank in
China.
(China Daily April 25, 2006)