Citigroup is likely to beat its French rival Societe Generale to buy a 19.9
per cent stake in the Guangdong Development Bank (GDB), a source close to the
Guangdong provincial government said Monday.
Despite claims by the banking regulator last week that the deal is yet to be
decided, a source close to the Guangdong administration said the provincial
government and the debt-troubled GDB had chosen Citigroup as its major foreign
According to the source,
the provincial government reported the choice of the US banking giant to the
China Banking Regulatory Commission (CBRC) in mid-October and the two reached a
preliminary agreement on the decision.
People pass a billboard advertising Citibank. The lender is
expected to buy a stake of up to 19.9 per cent in Guangdong Development
Bank. [China Daily]
"The choice of Citigroup is in accordance with the GDB's current situation
and future development," he said.
Citigroup yesterday declined to comment on the matter.
The US bank is expected to take as much as a 19.9 per cent stake in the
Guangzhou-based bank, in line with the current rule that a single foreign bank
cannot hold a stake of more than 20 per cent stake in a Chinese bank.
But winning the GDB stake might mean a difficult choice for Citigroup between
two Chinese commercial banks. Citigroup currently owns a 4.2 per cent stake in
Shanghai-based Pudong Development Bank. The two signed an agreement earlier this
year to allow Citigroup to raise its holding to 19.9 per cent through a private
placement by the Shanghai bank in 2007 based on the market price.
But industry insiders said China's banking regulator is not likely to allow
one foreign bank to invest in two similar banks, despite Pudong Development Bank
and Citigroup scrapping an former exclusivity contract forbidding the US bank
from seeking stakes in other Chinese lenders.
"This might be a potential problem for the ambitious US bank as the final bid
result is not yet decided," the source said, adding that the Chinese regulator
wanted to ensure foreign banks' investments in China are in line with current
Last Thursday Liu Mingkang, chairman of the CBRC, denied a report by the
Xinhua News Agency that Citigroup had won a bidding war with French bank Societe
Generale and China's second-largest insurer Ping An Group. "It's false. It's
misleading," Liu said of the report.
The decision to choose Citigroup, which has assets of US$1.5 trillion and had
revenue of US$83.6 billion by 2005, would end a year-and-a-half-long battle for
control of the GDB.
The US and French-led consortiums, along with their mainland partners, had
wanted to purchase at least 80 per cent of the debt-laden Chinese bank.
The Citigroup consortium, which includes the China Life Group, the nation's
largest insurer, and the State Grid Corp, the major electricity distributor,
offered around US$3 billion for an 85 per cent stake in the GDB.