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Bank Share Sales ‘Higher than Book Value’

Bank Share Sales 'Higher than Book Value'

A top Chinese banking regulator said on December 5 that recent criticism that shares in the country's banks were being sold too cheaply to foreign investors was unfair, according to a China Daily report.

Liu Mingkang, chairman of the China Banking Regulatory Commission (CBRC), said foreign strategic investors are helping to improve the competitiveness of the banking sector before more competition comes.

"The prices so far were all higher than the book value so we don't think the stakes have been sold too cheaply," the official told reporters at a briefing.

Chinese authorities have been encouraging banks to look for foreign investors, hoping their expertise and experience can help bridge the gap between China's banking sector and their international competitors.

Foreign banks are increasingly opting for equity investment as an effective way of penetrating the local market.

According to a PricewaterhouseCoopers report released in September, partnerships with a local bank ranked as the second most-favoured way of getting into the market, after organic growth, among the 35 foreign banks operating in China.

By the end of October, 22 foreign investors, such as the Bank of America, had invested a combined US$16.5 billion in 17 Chinese banks, accounting for 15 percent of total banking capital, CBRC statistics indicate.

But the prices paid for these stakes have been criticized recently by some analysts, who complained that the shares are being sold too cheaply to foreign strategic investors as well as public investors during initial public offerings (IPOs).

Sceptics say the prices could have been higher if the sellers' brand names, networks and customer bases had been taken into account; others say such factors as low profitability, poor asset quality and weak corporate governance justify the discounts.

Liu defended current price levels, while referring to the expected contribution that the foreign investors are expected to make and the potential risks they are taking.

The purpose of encouraging these investors is to diversify the banks' shareholder structure and to reduce their reliance on State coffers, as well as to improve their competitiveness through partnerships, he said.

He added that strict criteria are being used to ensure that investors do their jobs, including a minimum investment requirement of 5 percent, a three-year minimum partnership period, banking expertise and a requirement that the foreign investor participate in a bank's board or management.