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GE invests US$100m for 7.3pc of Shenzhen bank

The consumer finance arm of United States industrial giant General Electric has agreed to pay US$100 million for a strategic stake in Shenzhen Development Bank, according to sources familiar with the situation.

The deal, reportedly signed on Wednesday in Beijing by GE chairman and chief executive Jeffrey Immelt, and Shenzhen Development chief executive Frank Newman, was still awaiting approval from regulators last night.

Officials of the China Banking Regulatory Commission (CBRC), which is responsible for signing off on the transaction, did not return calls yesterday.

Under the terms of the agreement, GE will pay about 5.20 yuan per share for an effective 7.3 per cent stake in the Shenzhen-listed bank, according to a report in the official China Securities Journal.

The price represents a 15 per cent discount to the average value of Shenzhen Development shares over the 20-day period leading up to Wednesday, when the stock was suspended from trading.

Bank officials declined to comment yesterday. 'We have to wait for the stock exchange announcement to come out before we can comment,' said one Shenzhen Development executive.

On completion of the sale, GE is tipped to become the second-largest shareholder in Shenzhen Development after US private equity firm Newbridge Capital, which in October last year acquired a 17.89 per cent interest in the lender for US$149.8 million following a prolonged two-year courtship.

The stake is expected to give GE's massive credit-card business a strategic foothold in the nascent China market, where consumer borrowing levels lag far behind those of Asian neighbours such as South Korea, Japan or Hong Kong.

For Shenzhen Development, the injection of US$100 million provides much-needed cash.

While the CBRC requires a capital adequacy ratio of 8 per cent, Shenzhen Development came up far short at 3.1 per cent as of the end of June.

Still, that is an improvement. Newbridge's controlling stake allows it to appoint the lender's chief executive and other senior executives, who since December last year have succeeded in running a substantially tighter ship.

So far, they have brought the bank's capital adequacy ratio up marginally from 2.3 per cent at the end of last year.

GE's investment in Shenzhen Development is the latest in a recent string of high-profile foreign investments in China's beleaguered banking sector as mammoth state-owned lenders push to clean up their balance sheets in anticipation of overseas stock listings.

To date, foreign investors have pledged some US$17.25 billion towards taking up minority equity stakes in China's top five lenders.

Swiss bank UBS became the latest to join the fray when it announced this week it would pay US$500 million for a 1.7 per cent stake in the Bank of China, which is targeting a multibillion-dollar public offering next year.

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