HSBC is set to give up its exclusive right to increase its stake in the Shanghai-based Bank of Communications, signalling a shift by the European giant to focus more on growing its own business on the mainland.
People familiar with the situation told the South China Morning Post that HSBC, which has its headquarters in London, will not renew a long-standing agreement to boost its stake in Bank of Communications (BoCom), the mainland's fifth-largest bank by assets, to a maximum of 40 per cent. The agreement expires next week.
'Forget it. This is not going to happen,' said a Chinese banker, who asked not to be identified.
Beijing at present only allows a foreign institution to hold up to 20 per cent of a domestic bank. Even if the cap was raised, which the banker said he did not think would happen anytime soon, 'to be honest, looking at what is happening in Europe, I don't think HSBC could afford' to increase its stake now.
When HSBC, Europe's biggest bank by assets, announced it would buy 19.9 per cent of BoCom in August 2004 for US$1.75 billion, it also signed a deal giving it the option to increase its stake between August 18, 2008, and August 17 this year, assuming the government raised the foreign investment cap, according to people familiar with the agreement. BoCom later went public in both Shanghai and Hong Kong. The price of BoCom's Hong Kong-listed shares closed at HK$5.25 each yesterday, meaning another 20 per cent stake would cost HSBC at least HK$65 billion, or about US$8.4 billion.
BoCom officials were not available for comment.
An HSBC spokesman, when asked to comment on the option agreement, said only: 'Our collaboration with BoCom has been a success and of benefit to both banks as well as to our respective customers. We are always looking for ways to increase and deepen our level of collaboration, with the client base being the primary consideration.'
