Fubon Financial Holding Co (富邦金控), the nation’s second-largest financial service provider by asset size, has struck a deal with Shanghai-based First Sino Bank (華一銀行) to buy an 80 percent stake in the Chinese lender for 5.65 billion yuan (US$905 million) to facilitate Fubon’s expansion into China, a senior executive said yesterday.
The deal, which is pending regulatory approval in Taiwan and China, will give Fubon Financial 14 banking branches and outlets in first-tier Chinese cities in the Pearl River Delta, the Yangtze River Delta and the Bohai Economic Rim.
The development is a significant step toward Fubon Financial’s aim of tapping the Chinese market, as its local peers set up their first or second branches in China.
“After more than a year of negotiations, we have reached an agreement with First Sino Bank to acquire 80 percent of its shares and join its capital increase plan,” Fubon Financial president Victor Kong (龔天行) told a media briefing.
Fubon Financial and its banking arm are to contribute 800 million yuan to First Sino, Kong said.
The transaction will be carried out in cash, with Fubon Financial to take a 29 percent stake in First Sino and Taipei Fubon Commercial Bank Co (台北富邦銀行) to take the remaining 51 percent, Kong said, adding that Shanghai Pudong Development Bank (浦東銀行) would retain the remaining 20 percent of the shares.
A foreign investor is also to take part in the deal via a 4 percent stake in Fubon Financial, Kong said, declining to reveal their identity.
The transactions total 6.45 billion yuan — 2.18 times First Sino’s net worth — Kong said, adding that such a deal was “unprecedented” given the healthy asset quality and earning ability of the lender.
Established in 1997 to serve Taiwanese firms, First Sino Bank is ranked as the third most profitable foreign lender in China after Citibank and HSBC, Kong said.
The lender has a bad loan ratio of 0.15 percent and a coverage ratio of 927 percent, with returns on equities standing at 13.5 percent last year, the Chinese bank says on its Web site.
To finance the expansion, Fubon Financial aims to inject NT$7 billion of new capital into its banking subsidiary to keep its exposure in China under the 15 percent limit stipulated by financial regulations, Kong said.
The conglomerate also plans to enlarge its own capital by between NT$20 billion and NT$25 billion — NT$15 billion of which it plans to raise on the open market — to shore up its financial strength, Kong said.
Fubon Financial will shelve plans to establish branches in China after authorities approve the stake purchase, because foreign banks can only own branches or subsidiaries, but not both, Kong said.
Apart from expanding into first-tier Chinese cities, Fubon Financial is in talks with city-level Chinese lenders to forge strategic partnerships to reach customers beyond Fujian Province, where it owns a 20 percent stake in Xiamen City Commercial Bank (廈門商銀), Kong said.
“The effort will soon bear fruit,” in keeping with the group’s bid to deepen its presence in China, he said.