A Citigroup Inc-led consortium won approval yesterday to buy a Chinese regional bank in a US$3.1 billion deal that would give a foreign lender control of a Chinese institution for the first time in the country's newly opened market.
The closely watched deal comes as foreign institutions are spending billions of dollars to establish a foothold in China's state-dominated banking industry. Chinese banks are eager for foreign strategic partners with capital and skills to help them modernize operations.
Approval of the purchase of Guangdong Development Bank (廣東發展銀行) was announced on the Web site of the China Banking Regulatory Commission. It said the purchase should be completed quickly but didn't give a timeframe.
Stephen Thomas, a spokesman for Citigroup's China headquarters in Shanghai, said the bank had no immediate comment.
Citigroup, the biggest US financial institution, said last month that its group had won the bidding for the bank. It had offered 24.3 billion yuan (US$3.1 billion) for an 85.6 percent stake and operational control.
Guangdong Development Bank, based in Guangdong Province, is one of China's feeblest banks, which apparently prompted regulators to allow the foreign takeover in hopes of turning it around.
The bank had assets of 2.7 billion yuan at the end of June, but lost 150 million yuan last year, a stock market filing by China Life Insurance Co (中國人壽保險), one of the partners in the Citigroup consortium, showed.
"After the investment group completes the transaction, Guangdong Development Bank's reorganization still has a large amount of work to do," the banking agency statement said.
"The investors should continue to make great efforts to turn it into an internationally competitive, modern commercial bank," it added.
Beijing fully opened its banking market to foreign competitors on Dec. 11, ending restrictions on handling retail business in Chinese currency.
But foreign ownership of Chinese banks is still restricted.
The deal would give Citigroup a 20 percent share of the bank, the highest level allowed for an individual foreign investor, an earlier announcement by Citigroup said.
The other investors are IBM Corp, which will take a 4.74 percent stake; Chinese power utility State Grid Corp (國家電網) and China Life, each of which will hold a 20 percent stake; Beijing-based CITIC Trust (中國國際信託投資), with 12.85 percent and Yangpu Puhua Investment and Development Co (洋浦普華投資發展) with 8 percent, Citigroup statements showed.
That would comply with Chinese rules that limit foreign investors to a total stake of 25 percent in a bank.
Citigroup had been competing with a consortium led by Societe Generale SA of France for control of the bank and its 501 branches.
IBM joined the Citigroup bid in hopes that a connection to Guangdong Development Bank would lead to service deals to modernize its technology and business practices.
Foreign banks have invested billions of dollars in China to buy minority stakes in banks and help set up credit card and other services.
So far this year, foreign investors have spent US$18.6 billion on minority stakes in Chinese banks, according to capital markets data provider Dealogic.
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