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Citigroup Inc is leading a bid of at least 22 billion yuan (US$2.7 billion) for 85 percent of Guangdong Development Bank, the first state-owned Chinese lender to offer investors a majority stake, people familiar with the plan said.
The world's largest financial services provider is offering to buy between 40 percent and 45 percent of the Guangzhou-based bank, the sources said, asking not to be identified before a company announcement.
The remaining shares would be split among several Chinese partners, they said.
The proposal would value Guangdong Development at more than twice its book value, higher than the price paid this year by Bank of America Corp for shares in China Construction Bank Corp, the nation's third-largest lender.
"The foreign bidders are obviously looking for a chance to control the company's operations and have a major representation on the board," said Sam Ho, who helps manage US$100 million at KDB Asia Ltd in Hong Kong. "I can understand why they'll pay a premium, but it's still pricey given the poor quality of the bank's assets."
New York-based Citigroup is bidding against groups led by France's Societe Generale and Ping An Insurance (Group) Co, China's second-largest insurer. Beijing-based Construction Bank has 12 times more assets than Guangdong Development and is trading at about two times book value.
The three bidding groups are willing to pay more to gain a dominant influence over Guangdong Bank's strategy and management, the people said. China limits foreign ownership of its banks to 25 percent, a rule that will probably be waived because the southern Chinese lender is in urgent need of funds.
Richard Tesvich, a Hong Kong-based spokesperson at Citigroup, declined to comment.
Ai Liqun, a spokeswoman at Guangdong Development Bank, could not immediately be reached for comment. Xiao Ping, who handles media enquiries for Shenzhen, China-based Ping An, declined to comment.
Guangdong Development has 35 billion yuan (US$4.3 billion) more liabilities than assets, sources said. The Guangdong provincial government plans to pump about 30 billion yuan into the bank to help reduce loan losses, they said. The company's bad debt ratio may fall to lower than 5 percent of total loans after the bailout and private investments, the people said.
The Chinese lender had 215.7 billion yuan of outstanding loans and 300.5 billion yuan (US$37 billion) of assets at the end of 2004, according to the company's Web site. As of September 30, 35 banks had the minimum 8 percent capital adequacy ratio required by the China Banking Regulatory Commission, the regulator said early this month.
Societe Generale is asking to buy between 20 percent and 25 percent of Guangdong Bank, sources said. ABN Amro Holding NV, a partner with Ping An, is seeking a 5 percent stake, they said. Citigroup's stake might fall below 40 percent pending further discussions with Chinese partners, sources said.
Guangdong Development has 26 branches and US$43 billion of assets. Its home province was the first region in China to attract overseas investment and has the nation's highest per capita income after Beijing, Shanghai and East China's Zhejiang Province.
Guangdong Development has two-thirds more assets than Shenzhen Development Bank Co, which is based in the same province. That bank, whose major shareholder is San Francisco-based buyout firm Newbridge Capital Ltd, has a market value of 11.9 billion yuan (US$1.46 billion) .
Bank of America, the second-largest US bank, paid 1.15 times book value when it purchased US$2.5 billion of Construction Bank shares in August.
BOC International (Holdings) Ltd and Deutsche Bank AG are advising Guangdong Development on the stake sale. Goldman Sachs Group Inc is advising Ping An and Morgan Stanley is working with Paris-based Societe Generale. Citigroup is using its own investment bank to provide advice.
(China Daily December 22, 2005)
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