Goldman, Allianz, AmEx Buy Into China's ICBC
Fri Jan 27, 2006
By Kirby Chien
BEIJING (Reuters) - Goldman Sachs, Allianz and American Express agreed on Friday to invest $3.78 billion in Industrial and Commercial Bank of China, the country's largest bank, in the latest foreign bet on China's financial services sector.
The companies said in a joint statement a deal had been signed, but they did not confirm widespread reports that the trio had taken a 10 percent stake in ICBC, which has about 20 percent of China's banking market.
The price being paid by U.S. investment bank Goldman Sachs (GS.N: Quote, Profile, Research), European insurer Allianz A.G. (ALVG.DE: Quote, Profile, Research) and U.S. financial services company American Express Co. (AXP.N: Quote, Profile, Research) is much higher than the $3 billion-plus sum reported when they signed a memorandum of understanding for a 10 percent stake last July.
Since then, regulators have been criticized for selling a stake in China Construction Bank (0939.HK: Quote, Profile, Research) too cheaply to foreigners.
Foreign firms have paid about $16 billion for minority stakes in Chinese banks as Beijing seeks overseas capital and skills to modernise its sprawling state-owned banks, their balance sheets weakened by decades of state-directed lending.
"Today's announcement marks a new beginning for ICBC's corporate governance reform and business development," Jiang Jianqing, ICBC's chairman, said in a statement.
ICBC has around 18,000 branches and offices, serving over 100 million retail customers and 4 million corporate clients.
Goldman will help ICBC to improve its risk management and internal controls and to beef up its treasury, asset management and investment banking operations.
Allianz said it hoped to cash in on an expected rise in demand for private pensions by selling savings and insurance products to the bank's 100 million customers.
American Express will build on an existing agreement to cooperate in credit cards, the companies said.
The deal, which will give the Goldman-led group one seat on ICBC's board, sets the stage for the bank to sell shares to the public in the second half of this year or in 2007.
Allianz said it was paying $1 billion for a 2.5 percent stake. That confirmed information provided earlier by a banking source, who also said Goldman would invest about $2.58 billion for a seven percent stake and American Express would put in about $200 million.
"We are optimistic about cooperation between Chinese banks and foreign strategic investors because the banks are committed to reform," said Ryan Tsang of ratings agency Standard & Poor's in Hong Kong.
FINAL APPROVAL PENDING
The deal requires final approval from China's regulators, who have cast a critical eye on other big banking deals.
Temasek Holdings [TEM.UL], Singapore's state investment agency, agreed to buy a 10 percent stake in Bank of China [BOC.UL] last year but ran into objections by the bank's biggest shareholder, Central Huijin Investment Co.
According to Chinese media reports, Temasek was forced to cut its proposed stake because of official concern that Beijing was selling off its banks to foreigners too cheaply.
The deal with the Goldman-led group prices ICBC at about 1.22 times its book value, compared with 1.15 to 1.2 times for Bank of China and Construction Bank.
Bankers expect ICBC to list its shares after Bank of China has done so. Bank of China's initial public offering was originally expected this quarter but may now be delayed until the second half of 2006, according to bankers.
Bank of China could raise as much as $8 billion. That would make it China's second-largest IPO after China Construction Bank's $9.2 billion offering last year, the world's largest new share sale in four years.
Beijing has spent $60 billion from its foreign exchange reserves to clean up the three banks for their IPOs.
Agricultural Bank of China [ABC.UL], the weakest of the country's Big Four lenders, is eyeing a government bailout this year to clean up a balance sheet soiled with more than $90 billion in bad loans.
(Additional reporting by Belinda Goldsmith in New York and John O'Donnell in Frankfurt)
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