China policy bank raises US$7b in stake sale

In the run up to an expected listing next year, Postal Savings Bank of China sells a 17 per cent stake to international and domestic investors

PUBLISHED : Wednesday, 09 December, 2015, 7:12pm
UPDATED : Wednesday, 09 December, 2015, 7:16pm

Postal Savings Bank of China has sold a 17 per cent stake worth US$7 billion to 10 strategic investors including global and domestic firms such as JPMorgan Chase, Temasek Holdings and Alibaba Group.

The policy bank, which announced the private fund raising on Wednesday ahead on an expected initial public offering next year, has China’s largest branch network, a reach that finds its logo in towns and even villages void of other financial services.

The private placement valued Postal Savings Bank at about US$41 billion. Chinese state media reported in March that the bank was mulling a US$25 billion public offering.

China Life Insurance, UBS, Canada Pension Plan Investment Board, China Telecommunications Corporation, DBS Group Holdings and the investment arm of the World Bank also bought into the Chinese bank.

JPMorgan said in a statement that it had signed a strategic cooperation agreement and a securities purchase agreement with PSBC. The US bank said it would leverage retail, consumer and commercial banking franchises in the collaboration.

PSBC said the fundraising was China’s biggest-ever private placement.

As a policy bank, it has followed the government’s lead in offering the simplest banking products to the widest possible base, including small rural businesses.

The reach into a growing yet unexplored market has already attracted the attention of players in China’s e-commerce and internet industries, which continue to make inroads into rural communities in the hope of finding new markets for online goods.

Alibaba, China’s e-commerce giant, signed a strategic partnership last year with PSBC’s parent, China Post Group, for cooperation on payments and logistics, a promising sign for a potential tie-up between the bank and the online-shopping empire.

But there are also worries over the legacy costs of the bank, particularly in its outdated infrastructure.

PSBC has lagged in digital and mobile innovation. In July, China Post announced it would invest 100 million yuan (HK$121 million) in a mobile payment system, long after most large mainland banks had made the digital leap.

The bank offers only the most basic loan and deposit products, generating low returns. Its government minders have little appetite for introducing higher-risk products into rural communities. In that sense, the bank is hardly a growth story for investors.