China Life eyes bigger stake in Guangfa Bank

Mainland insurance firm could challenge bank shareholder Citigroup's influence

PUBLISHED : Wednesday, 29 August, 2012, 12:00am
UPDATED : Wednesday, 29 August, 2012, 4:11am

China Life Insurance aims to increase its stake in China Guangfa Bank, a move that will give it more control over the mid-sized Chinese lender.

The mainland's top life insurer has entered into talks with some investment agencies of the local government of Guangdong province, which plan to sell some of their holdings in China Guangfa Bank, formerly known as Guangdong Development Bank, according to people familiar with the matter.

The bank is planning an initial public offering of shares in Hong Kong and Shanghai next year to raise US$5 billion and US$6 billion.

Guangfa Bank is known in the international financial community partly because a Citigroup-led consortium won a US$3.1 billion bid for more than 80 per cent of the Chinese bank in late 2006.

Citigroup later also won de facto management control of the bank, considered a rare success for a foreign investor in the financial-services industry on the mainland. China Life and Citigroup each own a 20 per cent stake in Guangfa Bank.

"Fairly speaking, Citigroup has done a good job in the past few years to turn around Guangfa Bank and now it's ready for an IPO," said one of the people who declined to be identified because the shareholder sale discussions are private.

"But if China Life gets a bigger stake and thereby becomes the largest shareholder of the bank, that may challenge Citigroup's leading position and influence in the bank," he added.

Chinese insurers are eager to have closer ties to banks because they can serve as ready-made distributors for insurance products.

China Life and Guangfa Bank were not available for comment yesterday. Citigroup declined to comment.

Besides China Life and New York-headquartered Citigroup, State Grid Corp of China and Citic Trust, an investment arm of the powerful state-owned Citic Group, each hold a 20 per cent stake in Guangfa Bank.

Guangdong Finance Investment Holding is Guangfa Bank's sixth-largest single shareholder with just over 2 per cent, according to the bank's corporate website. Guangdong Finance is an investment arm of the Guangdong government.

The southern province, like elsewhere on the mainland, is trying to raise cash to help reduce government debt.

Half of the eight-person senior management team listed on Guangfa Bank's corporate website, including the bank's president and three executive vice-presidents, have long-time experience at Citigroup.

China Life has one representative in the team whose job title is also executive vice-president of the bank.

Separately, China Life yesterday posted a 25.7 per cent drop in first-half net profit to 9.64 billion yuan (HK$11.8 billion), while revenue dropped 8.3 per cent to 208.6 billion yuan from a year earlier.

The insurer said its had been affected by lower premiums income and investment returns.