Beijing asserts cap on foreign stake in Guangdong bank

PUBLISHED : Thursday, 11 May, 2006, 12:00am
UPDATED : Thursday, 11 May, 2006, 12:00am

Regulator bars US buyout fund Carlyle and French Development Agency from joining bidding groups

China's banking regulator has refused to lift foreign equity investment caps to aid the financial rescue of Guangdong Development Bank (GDB), the country's 11th-largest commercial lender by assets, sources say.

The China Banking Regulatory Commission (CBRC) also disqualified United States buyout fund Carlyle Group and the French Development Agency from participating in consortiums led by Citigroup and Societe Generale that bid for 85 per cent of GDB.

The Guangdong provincial government relayed the CBRC's decision to the financially distressed mainland bank and its professional advisers on Tuesday.

The ruling ended Citigroup's dream of immediately taking a 40 per cent stake in the Guangzhou-based lender, the first state-backed national bank to cede majority control to domestic and foreign investors.

It came after lobbying by Shenzhen-based Ping An Insurance, China's second-largest insurance group and the third bidder for the stake, to foster the nation's indigenous financial industry.

It may have also reflected calls to balance the interests of competing foreign companies, such as Ping An's 19.9 per cent shareholder HSBC Holdings, that are trying to expand their influence in the mainland's huge banking market.

With an equity base of less than US$10 billion each, Carlyle and the French Development Agency were disqualified for failing to meet a prerequisite for strategic investments in the bank.

Citigroup and Societe Generale would be allowed to revise the compositions of the competing consortiums without changing the bidding prices, the sources said.

For Citigroup, it would mean finding Chinese partners willing to buy almost 30 per cent of GDB formerly to be put under Citigroup's and Carlyle's names. A Citigroup spokesman declined to comment.

China limits a single foreign investor's equity interest in a mainland bank to 20 per cent and the combined equity holdings of foreign investors in the same lender to 25 per cent.

CBRC officials previously hinted at the possibility of exempting foreign investors in distressed banks from such ceilings.

That encouraged the Citigroup-led consortium to submit a 24.1 billion yuan bid for the stake in January, trumping Ping An's 22.6 billion yuan and the Societe Generale-led consortium's offer of 23.5 billion yuan.

Citigroup, which already owns a minority stake in Shanghai Pudong Development Bank, planned to take a 40 per cent interest, with Carlyle owning a further 9.9 per cent.

Even Societe Generale's more moderate plan called for itself to pay for 24 per cent of the bank and the French Development Agency buying 1 per cent.

Despite winning the Guangdong government's endorsement to proceed to exclusive talks with GDB, the Citigroup-led consortium's bid stalled at the central government level for months.