Shenzhen bank wins nod to sell stake to Baosteel
Daniel Ren in Shanghai
Shenzhen Development Bank has won shareholders' approval to sell a 5.44 per cent stake to Baosteel Group for 4.22 billion yuan to help ease its financial needs.
The lender will place 120 million shares with the country's largest steelmaker at 35.15 yuan each, a 4.22 per cent discount to yesterday's close of 36.70 yuan on the Shenzhen Stock Exchange. The deal received 99.8 per cent of the vote.
'The bank has a good prospect, but it needs capital now,' said TX Investment Consulting analyst Wang Yifeng. 'It is a good buy.'
Shenzhen Development Bank, controlled by United States buyout firm Newbridge Capital, was hungry for additional fund injection after General Electric pulled out of a US$100 million purchase of a 7 per cent stake in October.
The bank is seeking ways to comply with the required 8 per cent minimum capital adequacy.
Its ratio stood at 4.27 per cent on September 30.
Lenders are banned from some fund-raising activities, such as sale of subordinated notes, if they fail to meet the capital requirement.
Analysts said Shenzhen Development Bank would meet the requirement by the end of the month after the Baosteel deal and taking its retained earnings into account.
The bank reported a profit of 1.87 billion yuan in the first three quarters of this year, up 93 per cent from a year ago, banking on its strong trade finance business.
The company's A shares have risen 154 per cent this year as investors bet on the bank's long-term growth potential.
Baosteel, the parent of Shanghai-listed Baoshan Iron & Steel, had liquid assets of 100.79 billion yuan at the end of last year, according to Alysha Krester, the China editor of industry information provider Steel Business Briefing. It agreed not to sell the shares for at least three years.