Spain's second-largest bank plans to spend almost HK$10 billion to increase its stake in CITIC International Financial Holdings (CIFH) and CITIC Bank after CIFH delists.

Banco Bilbao Vizcaya Argentaria SA (BBVA) made the announcement yesterday of its plan to further increase its presence on the mainland.

CITIC Group, which owns about 55 percent of CIFH, has made a privatization offer and delisted its CIFH international arm from the Hong Kong stock exchange, according to an announcement by CIFH yesterday.

Trading in CIFH was suspended yesterday morning. It had closed at HK$5.70 on Monday.

Analysts said that CIFH, which holds a 15-percent stake in CITIC Bank, was undervalued.

"The share price of CIFH is unable to reflect the value of the company," said Patrick Shum, an executive director at Karl Thomson Investment. He said the price-to-book ratio of CIFH is only 1.2 times, while CITIC Bank is 2.2 times.

Tanrich Financial Research Head Matthew Kwok agreed, saying: "The share price of CIFH can merely reflect the value of CITIC Bank, but not other assets of the company".

He added that the listing status of CIFH has been questioned since CITIC Bank was listed in Hong Kong.

"Similar speculation was raised when Industrial and Commercial Bank of China (ICBC) was listed in Hong Kong - people questioned if ICBC (Asia) should be privatized or not," Kwok said.

For CIFH, the net asset value per share should reach HK$7, Kwok said.

A closer tie-up between Spanish BBVA, CIFH and CITIC Bank will come after the privatization proposal is passed.

BBVA said in a statement yesterday that the bank will pay 800 million euros (HK$9.6 billion) to increase its stakes if CIFH is bought out. The fund includes the investment in shares as well as a future contribution for CIFH development.

In late 2006, BBVA bought about 5 percent of CITIC Bank and 15 percent of CIFH for 989 million euros (HK$12 billion) to get into the coveted mainland market.

In CIFH, BBVA said it plans to increase its participation to approximately 30 percent of its share capital and designate three members to its board while it plans to raise its stake in CITIC Bank to 10.07 percent. BBVA will also have the right to nominate two directors to the board of CITIC Bank.

Kwok said foreign institutions are always eager to have more participation in the mainland's fast growing banking sector as the closer tie-up is positive and able to bring synergy, he said.

(HK Edition 06/04/2008 page2)