Citigroup Inc. will pay about 981 million yuan (US$118.5 million) for 8.3 percent of China's second-biggest publicly traded bank, its first such purchase in a nation where it has operated for a century, said an executive at the company that owns the stake.
Citigroup's Citibank NA unit agreed to pay 1.5 times the net asset value of the stake in Pudong Development Bank Co., said the official, a general manager at Shanghai State-Owned Assets Operation Co. He declined to be identified. Grace Guo, a Shanghai-based spokeswoman at Citibank, said an accord had been reached, without providing details.
The purchase is the fourth time China allowed a foreign bank to buy a stake in one of its lenders, which are seeking foreign investors to fortify capital and improve management as the nation prepares to fully open its financial services industry by 2006.
Pudong Bank said it needs to raise money to set aside against the risk of bad loans to 12 percent from 9 percent.
"China needs to improve the quality of its banks," said Michael Kurtz, an economist at Bear Stearns Asia Ltd "One way to do that is to import the knowledge of external financiers. The Pudong deal is about them importing Western management practices into their business."
The sale has been approved by the State Council, China's cabinet, and the central bank, Pudong Bank Chairman Zhang Guangsheng told investors. Pudong Bank is being advised by Everbright Securities Co, a brokerage controlled by China Everbright Group, ultimately controlled by the State Council.
Citibank may also buy 1.7 percent of Pudong Bank from Shanghai Jinqiao Export Processing Zone Development Co, bringing its stake in Pudong Bank to 10 percent, analysts said. The Chinese company said Dec. 3 that it will sell 60 million Pudong Bank shares to a holding company, a move that could help Citigroup's purchase.
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