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China's Shenzhen Development Bank finally agreed to sell as much as 17.89 percent in stakes to US investment firm New Bridge Capital Ltd and accept it as the principal shareholder.
According to a circular published in major securities newspapers on Monday, New Bridge would purchase 348.1 million non-tradable State and legal person shares from four State shareholders of the Shenzhen-listed bank.
New Bridge is expected to spend about 1.24 billion yuan (US$150 million) to buy the shares. All the negotiations regarding the transaction have been completed.
If the deal is implemented smoothly, it would make the US company the biggest shareholder in the bank.
The two sides first built a framework for transactions three years ago and had it approved by authorities in September 2002.
Then a special committee was formed to implement the transaction, but was dismissed last May, due to disparities of opinions during the transaction.
In March, New Bridge got the permission of Shanghai-listed China Minsheng Banking Corp to buy 4.82 percent of stakes in the bank.
Its reunion with Shenzhen Development Bank came as a surprise to many. Neither side revealed any details of the negotiations and the reason for the reunion.
But analysts said that the Shenzhen bank may have made some compromises, such as letting the US company control majority shares and giving it the biggest say in company operations and management.
The marriage with a foreign investor also helped share prices of Shenzhen Development Bank jump over the past two days.
The stock edged up 3 fen to close at 9.65 yuan (US$1.16) yesterday.
The asset quality and profitability of Shenzhen Development Bank are not high among all the five listed banks in China, said Zhang Genyun, an analyst with CITIC Securities.
But the share control rights would give the US company more influence in the bank and would enable it to enter other financial businesses, Zhang said.
Foreign institutions have been gathering pace in entering Chinese banks, based on the rosy expectation of the sector's future growth and the desire to win access to the Chinese market.
And instead of owning a minority ratio of stakes, more are trying to acquire control rights in local banks, Zhang said.
China's banking authorities are also encouraging foreign banks to invest in local banks.
China Banking Regulatory Commission (CBRC) Chairman Liu Mingkang said recently that authorities would promote the reform in small- and medium-sized banks and encourage them to introduce more experienced overseas strategic investors, who can also further develop their business in China via the network provided by the local banks.
According to CBRC regulations, the biggest ratio of stakes a single foreign institution can control in a Chinese bank is 20 percent.
Last month, Hang Seng Bank bought into a 15.98 percent share in the Industrial Bank in Fujian Province.
HSBC and Standard Chartered are also in talks with some shareholding banks to purchase their shares.
(China Daily June 2, 2004)
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