Shenzhen Development Bank will sell shares to Shanghai Baosteel Group Corp to raise 4.22 billion yuan (US$571 million).
Baosteel, China's biggest steel maker, will buy 120 million shares at 35.15 yuan each and agreed not to sell the shares for 36 months after the placement, the Shenzhen-based bank said today in a statement to the Shenzhen Stock Exchange.
Baosteel will hold a 5.4 percent stake in the bank after the placement.
The money will be used to boost the lender's capital, which sat at 4.27 percent at the end of September.
It is the only listed bank whose capital adequacy ratio falls below the regulator's threshold. The issue prevented the bank from boosting loan growth and expanding its network.
“The move will act as a shot in the arm to the lender as capital fallout has been an obstacle that has slowed its growth,'' said Qiu Zhicheng, a Haitong Securities Co analyst.
Haitong increased its rating on the bank from "hold'' to "add.''
China Securities Co said the move is positive and it maintains its rating on the bank at "add.''
The bank passed the plan at a board meeting on Saturday. The price was based on a 10 percent discount on the average trading price 20 days before the board meeting announced the share sale.
The plan requires approval at a shareholder meeting on December 19. It also needs regulatory approval from the China Securities Regulatory Commission and China Banking Regulatory Commission.
The bank in October said it canceled a plan to sell a seven percent stake to General Electric Co due to a "relevant regulation,'' indicating the deal failed to win approval from regulators.
GE's lending unit, GE Consumer Finance, agreed in 2005 to cooperate with the bank to develop its consumer credit sector and buy US$100 million in shares. The regulator's decision didn't change the two parties' cooperation on consumer finance.
TPG Newbridge Capital, which holds a 16.68 percent stake in the bank, now controls the bank based in the southern city in Guangdong Province. Newbridge's stake will be diluted to 15.8 percent after the share placement.
Shenzhen Development Bank's lending grew 17 percent to 213.9 billion yuan at the end of September. Deposits jumped 24 percent to 287.9 billion yuan.
(Shanghai Daily December 3, 2007)
