China city banks lure foreign investors

PUBLISHED : Thursday, 13 October, 2005, 12:00am
UPDATED : Thursday, 13 October, 2005, 12:00am

BEA in discussions to take stake in Dalian City Commercial while BNP seals deal to acquire 19pc of Nanjing operator

Mainland city lenders were back in the limelight yesterday after a spurt of multibillion US dollar foreign acquisitions of minority stakes in the country's three largest banks earlier this year.

It was revealed that Bank of East Asia (BEA) had been in talks to take a stake in Dalian City Commercial Bank while France's BNP Paribas yesterday sealed a deal to buy 19.2 per cent of Nanjing City Commercial Bank.

BEA was among several Asian and European investors that had held preliminary talks with the management of the seven-year-old city bank, a mainland official said.

The Dalian bank plans to sell up to a 25 per cent stake, likely to more than one foreign investor.

It would be part of two rounds of share placements to nearly quadruple its capital base to about three billion yuan by the first half of next year in order to meet the 8 per cent minimum capital adequacy ratio requirement.

If successful, the Dalian attempt would go a long way towards BEA chairman and chief executive David Li Kwok-po's ambition to establish strategic alliances or buy into two mainland lenders.

The Dalian bank's talks to sell stakes to foreign investors had been disrupted by a recent management reshuffle, the official said.

Earlier this year, it submitted an application to the China Banking Regulatory Commission to introduce a series of domestic corporate investors that will invest a combined 730 million yuan in the bank.

The lender has limited new domestic investors' equity stakes to no more than 200 million yuan each but has set no such restrictions for foreign investors, paving the way for them to become one of the major shareholders of the bank.

Its dominant shareholder so far is a company controlled by the municipal government.

Last year, the government allowed the lender to swap 1.76 billion yuan of bad loans for two light rail lines valued at the same amount, reducing its non-performing loan ratio from 15 per cent to 8.29 per cent at the end of last year, according to mainland paper Financial News.

Meanwhile, BNP yesterday announced it signed a deal to buy 19.2 per cent of Nanjing City Commercial Bank for 704 million yuan from several of the mainland lender's existing shareholders.

The acquisition, awaiting regulatory approval, would install the French bank as the Nanjing lender's second-largest shareholder behind the Nanjing State-owned Asset Investment & Management Holding, which owns 19.7 per cent.

'[The two banks] will establish a close co-operation in certain operational areas, including retail banking, fixed-income transactions, consumer finance, wealth management, risk management, information technology and organisations,' BNP said yesterday.

BNP will second to the mainland bank a number of executives and experts, including a vice-president, in addition to obtaining a seat on the Nanjing bank's six-member board of directors.