Citigroup consortium increases its bid for Guangdong Bank

A consortium led by Citigroup has increased its bid for 85% of Guangdong Development Bank to HKD 23.16bn ($2.98bn). If the consortium's' bid for the controlling share is successful, Citigroup would receive just below 50% of the stake, above the government ceiling of 20%, as the Guangdong Bank struggles to bolster its capital base. The potential sale faces competition from Ping An Insurance and Societe Generale with a decision expected to be reached in January. 

A group led by Citigroup raised its bid for a controlling stake in Guangdong Development Bank to 24.1 billion yuan (HK$23.16 billion), topping two rival offers, in a move that could leave the US-based financial services giant with the largest shareholding in a mainland bank of any foreign investor.

The consortium, which includes Beijing-based China National Cereals, Oils & Foodstuffs, boosted its offer for 85 percent of Guangdong Bank by 1.1 billion yuan from the original 23 billion yuan, a source said.

Officials from the Guangdong government, which controls Guangdong Bank, the China Banking Regulatory Commission, the People's Bank of China and Guangdong Bank were scheduled to discuss the proposals submitted by Citigroup, and rival groups led by Societe General and Ping An Insurance at a meeting in Beijing Friday, according to Caijing magazine, citing unidentified sources.

"The final results of the bidding may come out as early as the beginning of January," the source said.

If the Citigroup offer prevails, the New York-based bank would wind up with less than a 50 percent stake, the source said, but more than the current government ceiling of 20 percent.

The government seems willing to bend the rules in this case because the capital needs of Guangdong Bank are so enormous. Guangdong Bank, which has a nationwide banking network, is in the midst of a restructuring designed to bolster a capital base badly eroded by massive bad loans.

The US bank, which missed out on an opportunity to make a strategic equity investment in China Construction Bank earlier this year, has been aggressively pursuing Guangdong Bank.

It cleared one hurdle last week by ending its exclusive partnership with Shanghai Pudong Development Bank. The Shanghai-based lender agreed to waive its right to block Citigroup from investing in any other mainland bank in return for which the New York lender agreed to lift its stake in Pudong Bank to 19.9 percent from the current 4.62 percent.

Citigroup has faced strong competition in the bidding for Guangdong Bank. A consortium led by Societe General raised its bid to 23.5 billion yuan from 22 billion yuan for a greater than 80 percent stake, while another led by Ping An boosted its offer by 600 million yuan to 22.6 billion yuan.

France's Societe General, which, like Citigroup, has also enlisted local partners, is eyeing a stake of less than 25 percent with the remaining shares going to its allies. Ping An is seeking to buy about 80 percent.

Under China's current banking regulations, a single foreign financial institution is limited to a 20 percent stake in a mainland lender while the combined foreign ownership in a domestic bank cannot exceed 25 percent.

Even if Citigroup is allowed to breach this ceiling, that does not mean the stage is set for other foreign buyers to do the same.

"This [Guangdong Bank] case is a special one, enjoying special approvals from the government," another source said. "The central government is unlikely to [rewrite] the rules in the short term."

A total of 22 overseas financial institutions had spent more than US$16.5 billion (HK$128.7 billion) buying stakes in 17 mainland lenders by the end of October, according to the CBRC.

Most recently, a consortium led by the Royal Bank of Scotland won approval to buy a 10 percent stake of Bank of China. And Bank of America purchased a 9 percent stake in Beijing- based China Construction Bank.