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Britain's Hong Kong and Shanghai Banking Corp (HSBC) will pay US$1.75 billion to buy a 19.9 percent share of China's Bank of Communications (BoComm), the two announced on Friday in Beijing after an agreement-signing ceremony.
On the sidelines of the ceremony, BoComm Chairman Jiang Chaoliang said his bank plans to be listed in Hong Kong in the first half of 2005.
BoComm is China's fifth biggest bank and the largest shareholding one.
The deal between BoComm and HSBC, subject to regulatory approval, will be the largest foreign investment in the country's financial industry.
The investment will help HSBC gain a big foothold in a promising market coveted by many foreign banks.
But the investment will be HSBC's final one in China's banking industry, John Bond, chairman of HSBC Holdings, parent of HSBC, said at a joint press conference of the two banks' leading officials.
"We will concentrate on it to make it a success," he said.
HSBC now owns part of the Bank of Shanghai and owns 15.98 per cent of China's Industrial Bank through its Hang Seng Bank subsidiary.
Bond said HSBC will benefit from BoComm's large branch networks in the country. BoComm has 2,700 branches and outlets in 137 cities in China.
The two will set up a joint venture credit card company to issue a co-branded card, Bond said. Credit card business in China, which is still very small by international standards, is believed to have great potential.
Introducing strategic foreign investors is a part of solution that China's commercial banks are taking to meet looming challenges from foreign rivals, which will enjoy a fully open Chinese banking market by the end of 2006. The other part of the solutions include the selling of non-performing loans and public listing.
By forging a strategic alliance with HSBC, BoComm aims to make good use of HSBC's advanced experience, particularly in corporate governance, new product development and risk control, said BoComm president Zhang Jianguo.
Jiang said by signing the agreement with HSBC, his bank was finalizing the second stage of its three-episode reform plan. The first one is financial restructuring and the third one is going public.
BoComm said that it has consolidated its capital base by accepting capital injection by the State, other share holders and the social security fund. It has also issued subordinate bonds worth 12 billion yuan (US$1.4 billion) and sold bad loans with a face value of 41 billion yuan (US$4.9 billion).
After all these, the non-performing loan rate of the bank is 3.34 percent and capital adequacy ratio is at 8.82 percent.
Jiang said his bank will try to get listed before CCB and BOC, which are also preparing for overseas listings. The listing of the two, both of which are bigger, will certainly have an impact on BoComm, if they go first, he said.
But he hinted it would be too much of a rush if his bank tried to achieve a listing this year.
"We want to avoid the Western holiday season because lots of foreign bankers will be on vacation and many funds are running out of their budget at year's end," Jiang said.
By buying into BoComm, HSBC has outpaced its main international competitors in China such as US-based Citigroup and British company Standard Chartered.
Citigroup is reported to be interested in equity shares of one of the biggest four State commercial banks - the Industrial and Commercial Bank of China, the China Construction Bank (CCB), the Bank of China (BOC), and the Agricultural Bank of China.
Citigroup now owns nearly five per cent of the Shanghai Pudong Development Bank, and the two launched a credit card venture in February.
Standard Chartered, which makes two-thirds of its profit in Asia, was reported by Reuters to be in talks with several potential partners on the mainland but having no timetable for a deal.
(China Daily August 7, 2004)
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