Guangdong bank plans major stake sale
(Shenzhen Daily/Agencies)
Updated: 2005-08-16 10:12

The Chinese government planned to sell a majority stake in Guangdong Development Bank to investors, ceding ownership of a State-owned lender for the first time, people familiar with the plan said.

Regulators might waive a rule restricting overseas investors to a maximum 25 percent stake in a bank, the people said, asking not to be named.

The government controls more than 90 percent of China's US$4.3 trillion in banking assets and is encouraging lenders to clear bad loans and improve management as it opens the industry to overseas competition. Guangdong Development might become a test case for future share sales, investors said.

Chinese banks are trying to increase capital as competition intensifies in the run-up to 2007 when overseas banks will be allowed to lend local currency to Chinese citizens for the first time. China's 1.3 billion people hold about US$1.6 trillion in household savings.

Carlyle Group, JP Morgan Partners LLC and DBS Group Holdings Ltd. were among potential bidders for Guangdong Development, people familiar with the plan said. The bank is owned by the provincial government.

Guangdong Province, the first region in China to attract foreign investment, has the nation's highest per capita income after Beijing, Shanghai and the eastern province of Zhejiang. The bank had 344.5 billion yuan (US$41.6 billion) in assets at the end of 2004, compared with 5.6 trillion yuan for Industrial and Commercial Bank of China, the nation' largest lender.

The bank has hired Bank of China International (Holdings) Ltd. and Deutsche Bank AG to arrange its share sale.

"The Guangdong Provincial Government probably wants to try and see whether foreign partners can help bolster its bank," said Sam Ho, who helps manage $100 million at KDB Asia Ltd. in Hong Kong.

Guangdong Development is inviting bids from local and overseas investors. Ping An Insurance (Group) Co., China's second-largest life insurer, may submit a bid.

Guangdong Development, set up in 1988, had 215.7 billion yuan in outstanding loans at the end of last year, according to the bank's Web site.

Finding a foreign partner would allow Guangdong Development to offer new financial products and boost fee income. China's joint stock commercial banks, including Guangdong Development, derived only 7.1 percent of their profit from noninterest income in 2003, according to a Merrill Lynch & Co. research report published last month.

HSBC Holdings Plc, Europe's largest bank by market value, and Commonwealth Bank of Australia, the biggest by that measure in Australia, are among overseas lenders that have bought minority stakes in Chinese banks.

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