Investment cap exemption eyed to lure white knights

PUBLISHED : Tuesday, 16 August, 2005, 12:00am
UPDATED : Tuesday, 16 August, 2005, 12:00am

A special exemption from regulatory caps on foreign investment in banks and brokerages has been floated as a deal sweetener for overseas investors willing to help rescue troubled mainland financial institutions, according to sources.

The pending restructuring of Guangdong Development Bank (GDB) and Beijing Securities, two government-controlled financial institutions in deep financial woes, may be used as test cases.

'The Chinese side' has suggested that the 25 per cent ceiling on combined foreign ownership in an existing mainland lender be lifted for international investors coughing up money to help bail out GDB, a Guangzhou-based bank with a national licence, sources familiar with the situation said yesterday.

The bad-debt-ridden bank had told potential suitors that its predominant government shareholder was willing to relinquish a majority stake to new domestic and foreign investors, one source said.

'The market knows the bank is in pretty bad shape,' a market analyst said. 'To fix it, the government knows it needs to do a number of things. It has been suggested .... maybe you can encourage more people to participate if you can give them a bigger interest in the bank.'

Meanwhile, Swiss bank UBS, which has been approached to provide finances to the bailout of Beijing Securities orchestrated by the Beijing municipal government, is said to be in discussions seeking to break through the 33 per cent cap on foreign investment in a mainland securities brokerage.

In both cases, the regulators and top government officials are understood to have so far given no clear response to the suggestions.

Chances of a wholesale raising of the caps were slim as they would require amending of existing laws and approval by the Chinese cabinet, market observers said. But the absence of an outright rejection of the idea has raised hopes for a case-by-case consideration.

Several China Banking Regulatory Commission officials in Beijing and Guangdong denied knowledge of the issue. A GDB spokeswoman declined to comment.

Since last week, more than 10 potential suitors have participated in a series of presentations at GDB, which has retained BOC International and Deutsche Bank to advise it on the share sales.

China's second-largest life insurer, Ping An Insurance, has long been reported to be eyeing a stake in GDB to boost its banking unit.