Deutsche Bank acquires 9.9pc stake in Huaxia
Deutsche Bank has sealed a pact to take a 9.9 per cent stake in Huaxia Bank, cementing its maiden acquisition in the mainland's burgeoning commercial banking sector.
Deutsche Bank and co-investor Sal Oppenheim would buy a combined 587.2 million shares, or 13.98 per cent, of Huaxia for Euro272 million ($2.53 billion) from 18 of the mainland lender's existing shareholders, statements from both sides said yesterday.
Priced at 1.9 times Huaxia's interim book value and at a 9 per cent premium over its publicly traded A shares, the deal represents one of the most expensive foreign strategic investments in the mainland banking sector.
After the transaction, which awaits regulatory approval, Deutsche Bank will become the second-largest shareholder of Huaxia, the fourth-biggest of the five mainland listed banks, after Capital Steel Group.
Deutsche Bank is also understood to have secured the priority rights over additional shares being offloaded by other Huaxia shareholders in the coming years or subscribe to new shares to raise its stake to 19.9 per cent as soon as possible.
Germany-based Sal Oppenheim, Europe's largest independent private bank, will own 4.08 per cent of Huaxia.
Describing the acquisition as a long-time strategic investment, Deutsche Bank said the two sides would partner in credit cards, wealth management, distribution of investment products and cash management services over the next seven years.
Germany's largest lender will further provide expertise to help Huaxia improve its risk management, retail and corporate banking and governance.
'This investment will enable us to participate directly in the development of China's retail financial services sector, a dynamic market with rapidly growing consumer affluence and increasing financial sophistication,' said Rainer Neske, a member of Deutsche Bank's group executive committee.
Huaxia president Wu Jian added: 'This will further increase Huaxia's competitiveness in the market and keep up the pace of our overall development.'
Huaxia was advised by UBS in the transaction.
Sources close to the transaction attributed the high pricing of the deal to keen competition between Deutsche Bank and Societe Generale for the stake and Deutsche Bank's earlier disappointment from losing out to ING Group over a minority stake in Bank of Beijing.
'The number of attractive acquisition targets in the mainland banking sector is also quickly dwindling,' a source said.
Under the agreement, Deutsche Bank will gain one seat on Huaxia's board initially. It would be entitled to nominate two directors when the tenure of the present board expired, the mainland lender revealed in a statement to the stock exchange.
The two directors could sit on any of the functional committees under the board.
Huaxia will set up a unit to accelerate credit-card business development with Deutsche Bank's help, with the likelihood that the unit will be spun off when mainland regulation allows.
Huaxia booked a 29 per cent year-on-year increase in audited interim net profit to 639.8 million yuan, with the non-performing loan ratio standing at 3.13 per cent and the capital adequacy ratio just above the regulatory minimum of 8 per cent at the end of June.
However, analysts widely believed the figures masked a culture of weak management and operations, making the strategic partnership an especially welcome development.
