A consortium led by Citigroup, the world's biggest bank by market value, looked set to become the first foreign-led group to hold a controlling stake in a Chinese bank after troubled Guangdong Development Bank (GDP) agreed to discuss a US$3 billion bid for an 85% stake.
Citigroup is tipped for a 40% stake, with its Chinese consortium partners, featuring big state-held firms, likely to take the remainder. Despite rules limiting foreign ownership in the banking sector to 20%, Beijing is expected to clear the US bank's involvement in the bid, which is believed to be double book-value, due to GDB's desperate need of funds.
However, unsuccessful bidders Ping An Insurance from China and a consortium led by France's Societe Generale are lobbying the State Council to overturn the deal, the South China Morning Post reported. They argue that Citigroup should not be allowed to break existing regulations. HSBC also exerted pressure, claiming it should be allowed to exercise a pre-negotiated option to raise its stake in Bank of Communications to 40%, if Citigroup is successful.
Meanwhile, Citigroup's position as the leading shareholder in Shanghai Pudong Development Bank (SPDB) also came under pressure, with state-owned investment company Shanghai International looking to secure a 21.45% stake in the listed lender. The news of the Shanghai bid, which has yet to secure regulatory approval, followed a Citigroup announcement in December it would quadruple its Pudong stake to the maximum 19.99%. In exchange, SPDB agreed to release the bank from an agreement preventing it buying into GDB.
Not wanting to be left out of the party, Mitsubishi UFJ Financial Group (MUFG), the world's largest bank by assets, announced plans to invest in a Chinese lender, with Bank of China rumoured to be the most likely partner.
An alliance between MUFG subsidiary Bank of Tokyo-Mitsubishi UFJ and a Chinese lender would represent a significant development for the Japanese banking sector, which has made little impact overseas since the national economy went into a downturn in the 1990s. But with the majority of banks poised to complete the repayment of government bail-outs made during the recession, analysts expect interest in China to rise.
SOE reforms lose momentum
People's Bank of China governor Zhou Xiaochuan said the drive to reform state-owned enterprises had lost momentum and suggested profitable SOEs be required to pay dividends, Reuters reported. Zhou argued that China's three biggest state-owned commercial banks should pay dividends to their main shareholder, Central Huijin Investment, for redistribution. Such a scheme is supported by the International Monetary Fund, which proposes using the dividend stream to fund pension and social liabilities, thus giving households the confidence to save less and spend more.
Banks offer securities
China Development Bank and China Construction Bank began selling the country's first asset-backed securities. Investors appeared confident in CDB's securities, which priced at lower-than-expected yields, but cautious about buying CCB's real estate-backed securities. CDB issued US$517 million of its approved US$1.25 billion in securities, while CCB sold US$374 million of its US$620 million quota.
BOC approved for HK listing
Bank of China has secured State Council approval for a US$6-8 billion Hong Kong IPO in the first half of this year. The deal would be China's second-largest IPO, following rival China Construction Bank's US$9.2 billion October listing. In related news, Singapore state agency Temasek was forced to cut its US$3.1 billion offering for a 10% stake in BOC by half in order to win regulatory approval, with China's National Social Security Fund set to take the remaining 5%.
AMC debts hit the auction block
Bank of Shanghai sold nearly US$371 million in nonperforming loans to state-owned Cinda Asset Management to help bring the bank's NPL ratio below the 4% mark, the Wall Street Journal reported. Meanwhile, Orient Asset Management Corporation will auction a pool of non-performing loans worth US$386 million in Shandong province this year. The AMC recovered US$1.3 billion in cash from the disposal of non-performing financial assets in 2005, a record high. The sales come as AMCs look to boost deal flow ahead of their end of 2006 deadline for clearing NPLs transferred from state banks in 2000.
Financial JVs put on hold
Regulators stopped accepting foreign investment joint venture applications in the financial industry in a move that was seen to reflect frustration that allowing foreign investors access to China's stock exchanges has failed to rally the markets. Analysts said the China Securities Regulatory Commission would probably lift its freeze within months in accordance with its WTO accession commitment to deregulate much of the financial sector. The value of China's equity market has plunged by more than half since 2001, whit experts blaming market abuses for the downturn.
Interbank debt rules loosened
The People's Bank of China loosened corporate bond requirements to allow more bonds to be traded on the interbank debt market. Under the new rules, each bond issue must be worth a total of at least US$61.9 million and conform to more stringent financial disclosure requirements. Meanwhile, a single investor cannot purchase more than 30% of the bonds on offer. Six corporate bonds are currently traded on the interbank market, which is dominated by debt from the Ministry of Finance.