Temasek Holdings (Private) Limited, headquartered in Singapore, will invest US$1 billion at the initial public offering (IPO) during the China Construction Bank's planned international IPO, a bank spokesman announced Monday.
China Construction Bank (CCB) and Asia Financial Holdings Pte. Ltd. (AFH), a wholly-owned subsidiary of Temasek, signed a definitive agreement in connection with the strategic investment in CCB on July 1, the spokesman revealed.
Pursuant to the agreement, Temasek will invest in CCB through AFH.
AFH will also purchase certain existing shares from the Central Huijin Investment Company, Ltd., an investment arm of the Chinese government in state banks, the spokesman said.
Subject to mutual agreement, AFH will assist CCB in improving corporate governance, including the right to nominate suitable candidates for election to CCB's board of directors. Other areas of collaboration and technical support are still under discussions.
CCB's successful establishment of the strategic partnership with Temasek follows the signing of a strategic investment agreement with the Bank of America on June 17.
This demonstrates that CCB has taken another "important" step forward in deepening reform and improving corporate governance, and also signifies that CCB's strategic investor negotiation process is basically complete, the spokesman said.
Just two weeks ago, the Bank of America said it will invest 2.5 billion dollars in CCB, -- and earmark an additional 500 million dollars when CCB goes public later this year as scheduled -- for a roughly 9 percent stake in the country's leading property lender.
This was the largest sum of foreign investment poured into a Chinese company by a single foreign company, an insider said.
The Bank of America also received an option to increase its stake in the coming few years to 19.9 percent at the price of the shares in CCB's IPO, approaching to the ceiling set by China's banking regulator for investment by a single foreign bank.
Billions of dollars are affordable for the Chinese government and even a domestic enterprise. "If we are pursuing the money, it is not necessary at all to invite a foreign investor," Qin Chijiang, a financial professor of the Central University of Finance and Banking said in an interview with Xinhua.
"Instead, what a foreign partner could bring is more sophisticated management. It as a shareholder will prod CCB to exercise scientific decisions and promote transparency," Qin added.
Their agreement is a "good thing" as it shows that renovation of state banks was fruitful and attracted foreign investors, he said.
China is in the midst of overhauling its state banks, including CCB, the Industrial and Commercial Bank of China, the Agricultural Bank of China and the Bank of China, ahead of the World Trade Organization-mandated opening of the financial market to foreign rivals by the end of 2006.
At the end of 2003, CCB received 22.5 billion dollars in foreign exchange reserves from the central government-sponsored investment company Central Huijin, to help boost the bank's capital base.
CCB Chairman Guo Shuqing revealed earlier that his bank is trying to sell shares to the public this year, but the IPO also depends on market factors.
CCB's net assets soared to 194.7 billion yuan (23.5 billion dollars) by the end of last year. Its major business indices, such as return on assets and bad debt ratio, all met regulatory requirements.
Established in 1974, Temasek manages a diversified global portfolio of 54 billion dollars. Its investments are in a range of industries such as telecommunications and media, financial services, property, transportation and logistics.
CCB was advised in Monday's transaction by China International Capital Corporation and Morgan Stanley.
(Xinhua News Agency July 5, 2005)
