Lender will form a shareholding company, with China Life likely to take a stake in a move showing regulatory flexibility China Construction Bank (CCB), the country's third-largest bank, plans to inaugurate a shareholding firm on September 21 to hold its banking assets. The move is a key step towards multibillion-dollar domestic and international stock market flotations by the lender. China Life Insurance might become one of five to six founding shareholders of the new bank, although details had yet to be finalised, sources said yesterday. Central Huijin Investment, the company set up to hold state capital investments in banks after a government injection of US$22.5 billion each into CCB and rival Bank of China (BOC) late last year, will be the new company's controlling shareholder. Other minority shareholders will include the country's largest steelmaker Baosteel, dominant power grid operator State Grid Corp of China and China Yangtze Power, the domestically listed flagship of the Three Gorges Dam project. Jianyin Investment, the company formed from non-banking assets spun off from CCB, will also own a small equity interest in the future listing vehicle. China Life's investment, if confirmed, is a rare example of flexibility of the strict barriers separating the banking, insurance and securities industries, and signals Beijing's eagerness to reform the inefficient state banking giants before the industry's full liberalisation in late 2006. 'In China, any exception could be granted if the government believes it is of vital importance,' a banker said yesterday. The minority shareholders are expected to each dole out billions of yuan for their stakes in the listing vehicle of CCB, paying a price close to the firm's net asset value. A share Yangtze Power last month announced through the Shanghai stock exchange that its shareholders had approved a plan to invest two billion yuan in CCB's listing vehicle. A CCB spokeswoman declined to comment yesterday. Investment bankers involved in the listing plan could not be reached for comment. Previously tipped to be the first major mainland bank to float shares, CCB has in recent months trailed BOC and the country's fifth-largest lender, Bank of Communications (Bocom). BOC last month completed its reorganisation into a shareholding company. Also last month, Bocom struck a deal to sell a 19.9 per cent stake to HSBC for 14.46 billion yuan in the largest foreign equity investment in the mainland banking sector, hastening its listing plans. Earlier this year, Premier Wen Jiabao reportedly questioned CCB's commitment to reform. It is also believed that the State Council had taken issue with the 1.02 times book value price at which the bank proposed to sell stakes to the founding minority shareholders, a mainland industry source said. By contrast, HSBC agreed to pay 1.56 times Bocom's book value for its 19.9 per cent stake. The National Social Security Fund and most of Bocom's then existing shareholders also paid a premium to take or expand their stakes in the bank in the latest recapitalisation exercise. Bankers close to CCB dismissed suggestions of any State Council misgivings. 'There is nothing wrong with founding shareholders paying book value for their stakes,' a banker said, arguing they were buying into a new company instead of an established shareholding firm such as Bocom, whose book value did not completely reflect its value. CCB and BOC are both in talks to introduce foreign strategic investors. Partners in change The restructured CCB may have up to six founding shareholders Banking has been kept separate from other financial sectors A stake by China Life would mark a departure from policy