Citigroup wins $3.1bn deal for China’s GDB

A Citigroup-led consortium was on Thursday confirmed as the preferred bidder for Guangdong Development Bank, a struggling lender in southern China which has been subject to a prolonged bidding war.

Citigroup and its partners will pay Rmb24.2bn ($3.1bn) for an 85.6 per cent stake in GDB, which operates 500 branches across China.

A statement said that Citigroup will own 20 per cent of the bank’s shares and its consortium partners will hold the remainder. These include International Business Machines, which will take a 4.74 per cent stake, following its recent decision to join the group.

In addition, State Grid, a Chinese utility, and China Life, the mainland’s biggest insurer, will each hold 20 per cent, while Citic Trust is taking 12.85 per cent and Puhua Investment is taking an 8 per cent stake.

The consortium will now enter an exclusive period of negotiations with GDB, and full regulatory approval is expected within weeks. No details were provided about how many boards seats Citigroup will receive, although the bank is expected to assume operational control of GDB.

The battle for GDB during the past 12 months has been caught in a political debate about the sale of Chinese assets to foreigners, forcing Citigroup in particular to scale back its offer.

Citigroup has originally teamed up with Carlyle, the US buy-out fund, seeking to buy a combined 49 per cent of GDB, which would have given them a majority stake in the bidding group. However, Chinese regulators refused to waive a rule that limits total foreign ownership in mainland banks to 25 per cent.

Thursday’s declaration at a signing ceremony at GDB’s headquarters effectively ends the intense battle involving Citigroup and a rival consortium led by Societe Generale, the French bank. Ping An, a local insurance company, has also lobbied to gain control.

GDB’s decision to opt for Citigroup will annoy SocGen, which has argued that its own consortium, including Baosteel and Sinopec, has remained solid for months.

Citigroup executives hailed the decision, as important to the development of their China strategy. Meanwhile, Lee Zhang, chairman of Deutsche Bank China, the financial adviser to GDB, said: “This solution both met banking regulations and delivered excellent outcomes for the buyers and for GDB.”

SocGen said it would “evaluate the situation in the coming day.” It insisted that its bid remained in the best interest of GDB.

Wang Zhaoxing, assistant chairman of the China Banking Regulatory Commission, said the regulator would ”strictly examine the credentials of any new shareholder according to the relevant laws and regulations.”

Little is known about the precise financial health of GDB, although it is believed to rank as China’s 11th largest lender in terms of assets. Bad debts accounted for 22 per cent of GDB’s total lending at the end of 2003, the last year it published full accounts.

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