Bank of Communications Ltd, China's fourth largest by market value, rose the most in more than a week in Hong Kong trading after Chairman Jiang Chaoliang said there are no barriers for partner HSBC Holdings Plc to raise its stake.

The Shanghai-based bank's stock rose 7.1 percent to close at HK$11.72 after surging to a record of HK$12.30.

"It's up to HSBC to decide the timing of the stake increase," Jiang said in an interview in Beijing yesterday. "I guess it should be completed by this time next year."

HSBC, Europe's biggest bank by market value, wants to return to its 19.9 percent holding in the Chinese lender after its stake was diluted to 18.1 percent when Bank of Communications, also known as BoCom, sold 3.19 billion yuan of shares on the mainland in May.

HSBC, which generates about two-fifths of its profit from Asia, paid $1.75 billion for 19.9 percent of Bank of Communications in August 2004. It has an option, taking effect from August 2008, to lift its stake to 40 percent should Chinese rules permit.

Bank of Communications will set up a credit card joint venture and an annuity management venture with HSBC when the regulations permit, Jiang said.

The Chinese lender said yesterday it aims to increase annual profit by 63 percent this year to 20 billion yuan as economic growth boosts demand for loans.

Bank of Communications' yuan-denominated shares dropped 3.6 percent to close at 14.82 yuan yesterday as mainland stocks slid on concern an arbitrage proposal being studied by securities regulators will lure funds to Hong Kong and away from the mainland's exchanges. Jiang said the securities regulator has consulted the company on the issue, but did not elaborate.

HSBC has shifted its focus from North America to emerging markets. It has fired managers and curtailed lending to heavily indebted borrowers to counter a rise in consumer loan defaults at its US unit. The biggest bank in Hong Kong, HSBC has spent $5 billion on acquisitions in China since 2002.

It booked a one-time profit on its holding in Bank of Communications of almost $600 million in the second quarter after the Chinese bank completed its May share sale in Shanghai.

HSBC in August became the first overseas bank to win approval to set up a rural bank in China as the government sought to spread the benefits of the nation's economic growth by boosting financial services in the less developed regions.

Bloomberg News

(China Daily 10/19/2007 page14)