The rush to list the bank on the Hong Kong stock exchange caught up with the Credit Suisse Group as its proposed take-up of a US$500 million stake in CCB was scrapped at the last minute on a technicality.
To make the investment, the Swiss bank would have had to obtain a waiver from the Hong Kong stock exchange, as it is also one of CCB's underwriters, and this process was thought likely to delay the IPO.
CCB will now rely on Bank of America and the Singapore government's investor Temasek Holdings, which hold 9% and 5.1% stakes in CCB respectively, to provide expertise on issues such as risk management and corporate governance.
There was brighter news for Credit Suisse's rival, UBS, in its bid to gain a foothold in the Chinese banking sector ahead of the industry's full opening up next year. UBS, the world's sixth-largest bank by market value and an underwriter of Bank of China's (BOC) IPO, revealed it would invest US$500 million in BOC prior to the state lender's US$4 billion Hong Kong listing scheduled for March or April of next year.
Deutsche Bank has also been active in the Chinese market, entering into talks to clinch a US$330 million deal for a 14% stake in Huaxia Bank, after it lost out to ING when bidding for a share in Bank of Beijing in March.
Now it appears that Southeast Asia's largest lender, DBS Holdings Ltd, is also seeking a piece of China's banking action, Reuters reported. The Singapore-based DBS has been in talks with China's Guangdong Development Bank, in which it wants a controlling stake, and reportedly, certain warranties. If the deal is approved, it would make DBS the first foreign bank to get a controlling stake in a Chinese bank. Under current rules, investment in mainland lenders by a single foreign bank is capped at 20%, although Beijing has indicated its willingness to be more flexible on this. Guangdong Development Bank is the second-largest lender in China's affluent Guangdong province, with 480 branches and total assets of US$37.97 billion. The Chinese lender had a non-performing loan ratio of 22.8% at the end of 2003, twice the industry average. Besides DBS, other banks said by to be interested in Guangdong include Citigroup , ING and Chinese insurer Ping An Insurance.
Meanwhile, the planned conversion of non-tradable state-owned shares into tradable stock has altered China Minsheng Bank's US$100 million IPO plans. The country's only privately-controlled lender is to delay its listing until next year so as to complete the share conversion, with investors receiving three bonus shares for A-shares currently held as compensation for the conversion.
China to change bank ownership laws
China plans to increase the maximum stake foreign companies may hold in Chinese banks by the end of the year, Liu Mingkang, the chairman of the China Banking Regulatory Commission told state media. China currently allows foreign banks to own up to 25% of a Chinese bank, although an individual foreign institution may own only 20%. The planned reform stems from commitments made when China joined the WTO in 2001.
Banks' risk management inadequate
The yuan's new managed float system has created new challenges and risks that China's commercial banks are unprepared to face, Financial News reported, citing a China Banking Regulatory Commission report published in October. Knowledge about currency risk, effective risk management and other control mechanisms are still lacking, the report said.
BNP to buy into Nanjing Bank
BNP Paribas SA will pay about US$80 million for an 18% to 19.7% stake in Nanjing City Commercial Bank, a regional Chinese lender, with 10% of this stake being bought from the World Bank's International Finance Corp, The Wall Street Journal reported. By buying into a smaller bank, BNP appears to be aiming for more control over operations and a greater say in management, while paying less than other foreign investors have to take stakes in larger lenders, analysts claim. Commonwealth Bank of Australia, Deutsche Bank and ING also have invested in smaller Chinese banks.
BOC fires eight in alleged financial fraud
The Bank of China announced the dismissal of eight people involved in a financial fraud case that may have involved as much as tens of millions of dollars, state media reported, citing BOC spokesman Wang Zhaowen. The incident occurred earlier this year at BOC's Hesongjie sub-branch in Harbin, capital of China's northern Heilongjiang Province. The dismissed were director Gao Shan of the bank's Hesongjie sub-branch and two other staff who allegedly participated in the fraud; six other BOC staff were removed from their posts, the report said. Calling the case "complicated", Wang said the bank will attempt to recover the losses while noting that the case "will not have a big, negative effect on the BOC's financial performance, let alone on its ongoing shareholding reform."
GE set to invest in Shenzhen bank
US financial services and industrial giant General Electric is set to buy a 7% stake in Shenzhen Development Bank (SDB) and wants to eventually boost its level of ownership to the legal maximum allowed level of 25%, The Wall Street Journal reported. According to the bank's most recent share price, the 7% stake would be worth around US$100 million. Southern China-based SDB is one of few banks in the country already effectively controlled by foreign investors and GE sees it as a useful vehicle to enter China's developing consumer finance market.
Manulife venture to open in Shaoxing
Manulife Financial Corp, Canada's biggest insurer, said its mainland venture has received approval to open an Office in the city of Shaoxing, making it the biggest foreign insurer in terms of Chinese branches and giving it license to sell life insurance in 11 cities in China, Bloomberg reported. As of August 31, overseas companies had an 11.3% share in China's life insurance market compared to 2.4% a year ago.
ADB to take 1% stake in BOC
The Asian Development Bank will pay US$75 million for less than 1% in Bank of China, becoming the latest in a line of investors seeking stakes in Chinese lenders, The Wall Street Journal reported. William Willms, ADB's Principle Investment Officer overseeing the investment, differentiated ADB's designs from those of other investors like Temasek and Royal Bank of Scotland, saying "our goal is to put money on the table and help the invested companies in areas like corporate governance."
Foreign lenders encouraged to go west
China's banking regulator is easing investment restrictions on foreign banks in the west of the country in a bid to combat the region's poverty, Agence France Presse reported, quoting a China Banking Regulatory Commission official. Foreign banks can now directly apply to establish operational branches in cities in western China without first maintaining a representative Office in the relevant city for a minimum two years, as is the standard rule. Dutch bank ABN Amro has filed an application to open a branch in the western city of Chengdu, which, if approved, would make it the first foreign bank to directly set up shop there.
Banks' credit ratings rise
Seven mainland banks had their credit ratings raised by Standard & Poor's, which cited expected strong government support and the potential for further improvement in their financial services, The Standard of Hong Kong reported. China Construction Bank, which is planning a US$7.7 billion IPO in October, had its long-term foreign currency rating raised from BBB to BBB+, the eighth highest of ten investment grades. Bank of China and Industrial and Commercial Bank of China, which are both planning IPOs next year, also moved up two grades to BBB+.
Insurers should tap rural areas: report
To boost China's emerging life insurance sector, China should encourage insurers to tap into the huge potential in vast rural regions, suggested a report from McKinsey & Company. The report found most insurance companies don't provide sufficient coverage in under-developed areas, with foreign insurers focused on the wealthiest, most developed areas, leaving China's underdeveloped areas without access to life insurance.
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