China Everbright Bank is planning to launch as soon as next week a formal search for a strategic investment of at least US$1 billion from a foreign bank, as hopes of Standard Chartered taking a stake have faded, market sources said.
The mainland's eighth-largest bank hoped to sell a stake of about 10 per cent in a process that could take about six months to complete, the sources said.
'We've been contacted and asked to bring forward clients that might be interested,' one banker said.
However, Everbright Bank could face a tough sell, as the troubled global financial sector had made banking assets in other markets more attractive while some previous potential buyers had been weakened and were seeking rescues themselves, observers said.
Standard Chartered, long considered the front runner to buy a stake in the bank, was unlikely to make the final cut, the sources said.
'That's gone on for so long now that I think from both the Standard Chartered side and from Everbright's perspective, it is not going to happen,' one source said.
Sources said banks that could be interested included Barclays of Britain, Italy's Intesa Sanpaolo and UniCredito, Spain's Santander, and JP Morgan, a US bank that approached Everbright Bank about making an investment last month.
Several US banks have invested in mainland banks. These include Bank of America Corp in China Construction Bank Corp, Citigroup in Shanghai Pudong Development Bank and Guangdong Development Bank, and Goldman Sachs in Industrial and Commercial Bank of China. JP Morgan has not yet bought a stake in any mainland lender.
However, with such a large number of troubled banks in the US to choose from and JP Morgan chief executive James Dimon expressing interest in local deals, the bank may put its mainland purchase on hold for even longer.
'Does Jamie Dimon want to do something in China when he can get something much closer in the US?' said one market observer.
Still, the bank could be tempted by the increasingly rare opportunity to invest in a mainland bank with a branch network covering the country's high-growth areas. Beijing limits foreign investment in a domestic bank at 25 per cent.
'Everbright Bank is the only nationwide lender left available besides China Merchants Bank,' said Kim Eng Securities analyst Ivan Li Sing-yeung. 'Since China Merchants has already listed, foreign lenders may prefer choosing a bank that is not yet listed to bargain for a cheaper valuation.'
Sources close to Everbright Bank said the lender was seeking ways to cover accumulated losses of eight billion yuan before a planned initial public offering in the third quarter.
The bank had considered using profits earned last year and this year or cutting its share capital and use the surplus to offset the losses.
'Now there is another suggestion coming up, which is more certain to solve the debt problem and meet the target listing date,' said a source.
Balancing the books
Everbright Bank is seeking ways to cover losses of 8 billion yuan
The amount of investment being sought from a foreign bank, in US$1b