Friday, April 8, 2005
BoC reveals potential partners
Richard Mcgregor / Beijing April 08, 2005
Says it is negotiating with 'about 10' foreign strategic partners. Bank of China (BOC), one of the country’s big four state-owned lenders, says it was negotiating with “about 10” potential foreign strategic partners, including Deutsche Bank, UBS and the Bank of America, ahead of its overseas listing.
A spokesman for the BoC in Beijing confirmed the names of its potential partners on Thursday, after refusing for months to acknowledge whom it was in talks with.
BoC, along with the China Construction Bank (CCB), are seeking foreign partners ahead of pioneering initial public offerings overseas, possibly as early as later this year.
The IPOs are a crucial part of Beijing’s multi-pronged effort to reform its financial system, especially the big state banks.
BoC’s willingness to discuss the names of possible partners may be an attempt to accelerate the negotiations, which have continued on and off with different parties for at least a year.
CCB and BoC have both undergone extensive restructuring over the past 12 months but have also been buffeted by a number of scandals and persistent questions over their ability to improve corporate governance.
Thursday’s disclosure is a signal that the BoC wants to press ahead with its IPO timetable, despite the setbacks.
The most difficult issue may be what the foreigners are demanding in return for investing sizeable amounts, of US$1 billion and more, in the Chinese lenders.
Although foreign banks may get board seats, the size of the Chinese banks means that even a few billion dollars is not enough to give them any management control.
Ken Lewis, BofA’s chief executive, said in a recent interview with the Financial Times the bank would be willing to invest US$1-2 billion in a Chinese lender as part of a strategic partnership.
Lewis specifically mentioned a credit card joint venture, which would allow the US bank to market its brand name cards to wealthy Chinese consumers.
“You would probably make your money on the joint venture, while the equity investment would be the price of entry,” Lewis said.
A model for such a joint venture has been established by Citibank which structured its cards venture in Shanghai with Pudong Development Bank to ensure that it retained substantial management control.
Citibank has also been in talks with CCB about taking a stake as a strategic investor. GE Capital is also considering a partnership to enhance its presence in China.
China has encouraged foreign involvement at all levels of its financial system, with a slew of overseas banks buying into city commercial banks in recent months.
CCB had been considered likely to list first, ahead of BoC, but the recent departure of its chairman, Zhang Enzhao under a cloud of bribery allegations may delay their plans.