Baoshan Iron and Steel Co (Baosteel), China's largest steelmaker, plans to purchase 120 million shares from Shenzhen Development Bank for 4.2 billion yuan.
The share-purchase plan will be discussed at Shenzhen Development Bank's shareholder meeting, and is pending approval from the China Securities Regulatory Commission and the China Banking Regulatory Commission.
The money will be used to help the lender boost its capital adequacy ratio. The adequacy ratio of Shenzhen Development Bank currently stands at 4.28 percent.
After the capital inflow from Baosteel, the bank is expected to improve its capital strength and enhance the quality of its brand businesses, Shenzhen Development Bank said in a statement filed to the Shenzhen Stock Exchange yesterday.
It will also raise the bank's net assets to about 12.6 billion yuan.
Once the deal is closed, Baosteel will become the second-largest shareholder of the bank, after US private equity firm Newbridge Capital.
Baosteel has so far invested in many other areas aside from its main business field, including listed trust companies, banks and securities companies. From 1996 to 2006, it invested in a host of financial institutions that include China Construction Bank Corp and China Pacific Insurance (Group) Co.
"The market reaction is positive to the steel company's investment in the banking area," said Wu Feng, an analyst at TX Investment Consulting Co Ltd.
"It has experience investing in the financial fields before. And the financial business is believed by many to enjoy steady profit growth."
Shares of Shenzhen Development Bank jumped 6.15 percent to close at 38.30 yuan yesterday.