China Life joins foreign group in bid for 85pc GDB stake

China Life Insurance has joined a Citigroup-led consortium to bid for an 85 per cent stake in Guangdong Development Bank (GDB), the mainland's 11th-largest commercial lender, sources said.

Although promising to fill the vacuum left after Beijing's refusal to lift the caps on foreign investment in banks, China Life's entry will face regulatory hurdles in a market just starting to toy with the idea of multi-role financial firms.

China's dominant life insurer, listed in Hong Kong and New York, might use its parent firm as the investment vehicle, sources said.

It is not known whether China Life will take over the 25 per cent stake relinquished by the consortium's two foreign members that may be worth seven billion yuan.

A Citigroup spokesman in Hong Kong declined to comment.

The Citigroup-led consortium in December last year submitted the 24.1 billion yuan winning bid for the GDB stake, trumping a 23.5 billion yuan bid from a consortium led by French rival Societe Generale and the 22.6 billion yuan pitched by Ping An Insurance, China's second-largest life insurer.

The earlier proposal envisaged Citigroup and United States buyout firm Carlyle Group respectively owning 40 per cent and 9.9 per cent of the bank directly, with state-owned firms China Energy Conservation Investment, China Potevio, and China National Cereals, Oil and Foodstuffs Corp taking up the remainder.

The plan was thrown into disarray after the State Council and the China Banking Regulatory Commission (CBRC) refused to exempt the foreign firms from a rule capping any single foreign investor's stake in a mainland bank at 20 per cent and the combined interest of foreign investors at 25 per cent.

Citigroup and Societe Generale, previously eyeing a 24 per cent stake itself, were given a week to revise the compositions of the consortiums they led.

CBRC also said the Carlyle special purpose vehicle in the previous proposal and the French Development Agency assigned to buy 1 per cent of GDB as part of the Societe Generale consortium did not meet the minimum capital requirement for such investments.

In a revised proposal last Friday, Citigroup cut its proposed stake in GDB to just below 20 per cent while a larger Carlyle vehicle slashed its interest to less than 5 per cent.

China Life is eager to branch out into the banking business to help sell more policies and fulfil its ambition to become a multi-role financial institution.

With a high solvency margin of 59.56 billion yuan, translating into a 273 per cent solvency ratio at the end of last year, the insurer's listing vehicle was also anxious to put the excess capital to more productive use, an analyst said.

An acquisition of this size is likely to affect its share price. Its unlisted parent firm, having inherited its earlier, loss-making policies, is less padded with cash.

China Life's bid will need clearance from mainland insurance and banking regulators and special approval from the State Council.