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Supplement: BOC chairman elaborates on 7 pressing questions

(China Daily)
Updated: 2009-03-08 10:57

Xiao Gang, chairman of Bank of China (BOC), was recently interviewed about 7 key questions. Will BOC's overseas strategic investor Temasek sell the stocks of BOC it possesses? Whether the cooperation between RBS and BOC continue after it sells the stocks of BOC it possesses? And will BOC privatize BOC (Hong Kong) as the rumors currently flying around suggest? All of these have been weighing heavily on the minds of their investors.

Temasek has already promised not to sell BOC's stocks in the first half of the year

Xiao noted that BOC has had intimate communication with its strategic foreign investor Temasek and the investor has promised to at least not sell it's currently possessed BOC stocks in the first half of 2009.

Xiao added that regardless of whether Temasek sells the stocks or not, in the future, both parties will continue to maintain their cooperative ties.

In August and September of 2005, BOC signed an investment agreement with RBS, UBS, and Fullerton Financial Holdings under Temasek and Asian Development Bank respectively. The four investors, in total, hold 35.299 billion H shares, occupying 13.9 percent of the total capital stock of BOC, of which, Temasek holds 4.13 percent of the total capital stock. Late last year and early this year, UBS and RBS had already sold 3.378 billion H shares and 10.809 H shares, but the two transactions had not caused any negative influence to BOC's operations and financial situation.

BOC will not privatize BOC (Hong Kong)

In view of the rumors and speculation that BOC may privatize BOC (Hong Kong), Xiao Gang decisively stated that BOC (Hong Kong) will not be privatized.

He clearly pointed out that as BOC (Hong Kong) is the currency issuance bank of the Hong Kong Special Administrative Region (SAR), and in order to solidify its market position in Hong Kong, BOC has no plans to privatize its Hong Kong subsidiary.

In last June and December, BOC will offer €660 million ($880 million) and $2.5 billion subordinated loans to BOC (Hong Kong). The terms and conditions for the subordinated loans were disclosed at the Stock Exchange of Hong Kong Limited (SEHK) and the Shanghai Stock Exchange (SSE).

Xiao Gang expressed that as the currency issuance bank of Hong Kong SAR, its capital adequacy ratio must reach above 11 percent. The subordinated loans offered by the parent company are used to make up the BOC (Hong Kong)'s capital and for the improved development of BOC (Hong Kong) in the future. All transactions meet market criterions and all the terms and conditions of the agreement were made public.

The approval of BOC's acquisition of the equity of La Compagnie Financiere Edmond de Rothschild (LCFR) is under way

Report said that BOC's acquisition of LCFR is currently stalled. When questioned about the progress of this project, Xiao Gang replied that the regulatory body is currently approving the transaction.

He then said that he expected the approval, but also said, "regardless of whether it is approved or not, the intimate cooperation between us will not be influenced."

Last September, BOC signed an agreement with LCFR stating that BOC will acquire 20 percent equity of the latter and become its 2nd biggest shareholder.

The cooperation with RBS will continue

In early January, RBS sold 10.809 billion H shares of BOC, putting an end to it's capacity as a strategic cooperator. Whether the cooperation between the two banks will continue is a current focus of market attention.

Xiao Gang said the reason for such foreign-funded institutions' as RBS to reduce their hold of BOC shares is not because of a wish to sever ties, but themselves. "As they are in great need of cash, they had to reduce the hold, and we understand their situation." The cooperation between BOC and RBS remains fruitful and their planned cooperation is still ongoing will continue to intensify as time passes.

It's said that the newly-elected CEO of RBS will come to Beijing to discuss matters on continued cooperation. As confirmed previously, the cooperation in such aspects as HR management and credit cards will be further expanded; RBS will also continue to help BOC in such aspects as technology, experience, and risk control.

Xiao Gang pointed out that as RBS has not been a long-term strategic investor, the cooperation between both parties will not be exclusive. BOC may seek cooperation with other foreign banks later on. "We will intensify our overall cooperation with foreign banks later on and gain more experiences in such aspects as product innovation and risk control."

BOC will actively participate in Chinalco's acquisition of Rio Tinto

It's said that BOC is actively involved in the negotiations between Chinalco and Rio Tinto and considering offering capital support to Chinalco.

Xiao Gang upheld that acquiring overseas rare mineral resources is more profitable than acquiring financial institutions, while mineral resources are unrenewable resources, the current price is reasonable under the backdrop of financial crisis.

Xiao expressed that BOC has a stable cash flow at present. As this is a good investment opportunity and the return on such projects is considerable, BOC will actively engage in this.

Recently, Chinalco reached an agreement with Rio Tinto. With an additional investment of $19.5 billion, it increased the proportion of its equity over Rio Tinto to 18 percent and acquired some equities in iron ore, copper ore and aluminum assets. The transactions still await the approval of the relevant regulatory bodies.

BOC and Chinalco have cooperated in a multiple of areas and both parties signed a strategic cooperation agreement on September 28, 2007. According to the agreement, BOC will offer 23.8 billion yuan credit certification support to Chinalco.

BOC will not participate in HSBC's equity financing plan

Recently, HSBC formally declared the raising of £ 12.5 billion through the additional issue of new shares, this move creating a new record in the issuance of new shares in the UK.

Xiao Gang said that he believed that HSBC's equity financing plan will succeed, but BOC has no plans for participation in this plan.

He said that BOC prefers a development strategy of obtaining a holding or dominant position if it invests in or acquires a bank, instead of making financial investments.

BOC has no intent to bid for AIA

Xiao Gang said that BOC will not participate in the bid for AIA.

"First, AIA's core business is life insurance, but BOC's core business is commercial banking, these two companies have different strategic orientations; secondly, as the loss of European and American financial institutions has not yet hit rock-bottom, it's not suitable for BOC to step in yet," Xiao added.

The insurance giant AIG has been severely hit by the recent financial crisis. In last October, the AIG Beijing Representative Office said that AIG is seeking one or more strategic investors for the solely-funded life insurance subsidiary AIA under it and AIG will sell some equities over AIA.