Political spat delays 30b yuan fund aid for Guangdong bank

Officials using issue as bargaining chip to support rival bidders for stake in lender

The central and provincial governments are still haggling over who will foot the bill for a 30 billion yuan capital injection to clean up troubled Guangdong Development Bank (GDB) ahead of a stake sale to strategic investors, sources said.

Funding options are being used as a political bargaining chip and failure to finalise the arrangement soon could further delay bringing in investors, according to people familiar with the situation.

Distressed GDB, the mainland's 11th-largest commercial bank by total assets in 2004, is planning to sell an 85 per cent stake to foreign and domestic strategic investors.

The capital injection, together with the bank's earlier disposal of 35 billion yuan in non-performing loans, was aimed at cleaning up its balance sheet by plugging cumulative losses and reducing its bad debts to about 5 per cent of total loans. 'No final deal could be signed with the strategic investors without solving this problem [capital injection],' a source said.

The original proposal called for the central government and the Guangdong government to share the financial burden, the sources said.

However, the detailed funding arrangements are still up in the air as various factions in the government are using the capital injection as a bargaining chip since they support different bidders.

While most officials in the central and provincial governments supported the Citigroup-led consortium which submitted the highest 24.1 billion yuan bid for GDB last December, some provincial officials are said to favour the Societe Generale-led consortium and Shenzhen-based Ping An Insurance which respectively submitted the second- and third-highest bids.

Citigroup originally planned to take a 40 per cent stake and partner Carlyle Group would snap up another 9.9 per cent. SocGen was eyeing a 24 per cent stake with the French Development Agency buying another 1 per cent. Both consortiums were forced to revise their bids after the State Council and the China Banking Regulatory Commission (CBRC) refused to lift the existing 20 per cent cap for any single foreign investor's equity interest in a mainland bank or the 25 per cent ceiling for the combined stake of several foreign investors.

The revised bids by the Citigroup and SocGen-led consortiums would first be submitted to the CBRC for vetting.

Should the regulator approve its structure and investment eligibility of individual members of the consortiums, the Citigroup consortium would advance to exclusive talks with GDB on the acquisition of the stake. The SocGen consortium would be next in line followed by Ping An.