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Mon, Oct 16, 2006 - Page 10 News List

ICBC picks Goldman to avoid rivalry

PEER COMPETITION ICBC's chairman said that a securities firm would be a more fitting partner than a commercial bank, which could be a future rival in the high-end market

BLOOMBERG AND AFP , HONG KONG AND SHANGHAI

Jiang Jianqing, chairman of the Industrial and Commercial Bank of China, appears on a screen (top right) during a teleconference in Hong Kong yesterday.

PHOTO: AFP

Industrial & Commercial Bank of China Ltd (中國工商銀行), China's biggest lender by assets, said it has chosen Goldman Sachs Group Inc as a strategic partner instead of a commercial bank because it won't create future competition for the company.

ICBC steered clear of international commercial banks as partners to avoid competition for high-end clients, chairman Jiang Jianqing (姜建清) said in a teleconference in Hong Kong yesterday.

China has pushed its banks to find outside investors to help improve their balance sheets ahead of initial public offerings (IPO). Goldman, the world's most profitable securities firm, paid almost US$2.6 billion in April for 16.5 billion shares of ICBC for itself and its employee and client-owned private equity funds.

"Our selection of strategic investors is a result of careful balancing and consideration," Jiang said.

"Working with major international commercial banks may create competition in our core business areas that would not serve our best interests," he said.

ICBC plans to raise as much as US$19.1 billion in the world's biggest IPO. It will offer 35.4 billion shares at HK$2.56 to HK$3.07 apiece. The public offering will begin tomorrow at 9am and close on Thursday, the company said yesterday. Trading in the shares is expected to start on Oct. 27.

Allianz AG and American Express Co together bought US$1.25 billion of ICBC shares before the IPO. The combination of strategic partners will help ICBC strengthen its non-credit and fee-based busi-nesses and enhance its long-term competitiveness, Jiang said.

While focusing on domestic business, ICBC will seek merger and acquisition opportunities at appropriate times to develop its overseas business, Jiang said.

Other channels include establishing new branches and setting up subsidiaries in foreign countries, he said.

The company will also sell 13 billion shares at 2.6 yuan to 3.12 yuan each in Shanghai. Trading is also expected to begin on Oct. 27.

Intense investor interest in the ICBC's IPO appears to be a ringing endorsement of China's banking reforms, but critics caution that systemic problems lie unresolved.

The lender is the third of China's big four banks to list offshore after China Construction Bank (中國建設銀行), which floated in Hong Kong last year.

Bank of China (中國銀行) listed in Hong Kong in June, and then in Shanghai in July, while smaller banks such as China Merchants Bank (中國招商銀行) held its IPO last month in Hong Kong.

By forcing state-run banks to be made accountable to public shareholders, regulators hope to improve management and operational transparency and even end pernicious corruption.

While Chinese banks are indeed healthier today, analysts said investors are ignoring at their peril what is still congenitally poor management, weak lending practices and a banking culture mired in the bad habits of central planning.

"The improvements on finances or the balance sheet is relatively obvious but little has changed in terms of management, operations and creating an enterprising culture," said Gao Shanwen, chief economist with Shanghai-based Everbright Securities.

Beijing initiated reforms in late 2003 and April last year with two bailout packages worth US$60 billion aimed at wiping out non-performing loans and preparing three of its big four state banks for foreign listing.

Four state-run asset management firms took on around US$200 billion of banks' bad debt, which the government now says leaves about US$200 billion of unrecoverable loans in the banking system.

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