HSBC in landmark China deal

By This Is Money
Updated: 18:00 EST, 5 August 2004

 

HSBC said today it would pay $1.7bn (£958m) for 19.9% of China's Bank of Communications, marking the largest foreign investment in China's financial industry.

HSBC, which was founded in 1865 in Hong Kong and Shanghai, will leapfrog rivals including Citigroup and Standard Chartered by gaining an important foothold in a market with $1.3 trillion (£712bn) in savings.

HSBC - the world's third-biggest bank, with a market value of £92bn, said the deal - which is subject to regulatory approval, values Bank of Communications at $8.8bn.

Bank of Communications said HSBC would buy 7.78bn shares in a deal that eclipses the previous biggest financial investment, also by London-based HSBC. The bank paid about £420m for 9.9% of Ping An Insurance, China's second-largest life insurer.

HSBC's latest move is likely to help open more inroads by global banks into China and boost the profile of China's fifth-largest lender, said David Marshall, Fitch Ratings managing director of financial institutions for Asia.

'This kind of strategic stake is considered to be a very important part of China's (banking) reform process,' he said.

Shanghai-based Bank of Communications is planning a £1.1bn stock listing as early as next year through HSBC and Goldman Sachs, banking sources told Reuters.

China has become the top target of global banks lured by the potential of its 1.3bn population and booming economy, which is widely expected to grow by more than 8% this year.

HSBC will have the largest foreign presence in the financial services sector, which many overseas insurers, banks and investment houses are betting will become one of their biggest markets in coming years.

Under Chinese government rules, no single foreign investor can hold more than a 20% stake in a Chinese bank. Besides its Ping An holdings, HSBC owns part of the Bank of Shanghai and owns 15.98% of China's Industrial Bank through its Hang Seng Bank subsidiary.

HSBC's aggressive expansion into mainland China has analysts and bankers expecting big splashes by other international players, particularly primary rival Citigroup.

The world's largest financial services company is often mentioned as a potential suitor for one of the Big Four China banks, which along with China Construction Bank and Bank of China includes the Industrial & Commercial Bank of China and Agricultural Bank of China.

Standard Chartered, which makes two-thirds of its profit in Asia, said on Wednesday it was in talks with several potential partners on the mainland but it had no timetable for a deal.

HSBC may not be finished shopping for acquisitions in Asia. The bank is reportedly eyeing stakes in Japanese consumer finance companies Takefuji and Aplus.

The bank has built up a huge base of capital to finance its purchases. On Monday, HSBC said pre-tax profit for the six months ended 30 June rose 53% to a record £5.13bn. It revealed the Chinese deal with its results, but released details only today.