BEIJING - A top
Chinese banking regulator said on December 5 that
recent criticism that stakes in the country's
banks were being sold too cheaply to foreign
investors was unfair.
Liu Mingkang,
chairman of the China Banking Regulatory
Commission (CBRC), said foreign strategic
investors were improving the competitiveness of
the banking sector before more competition was
introduced. "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 said.
Chinese authorities have been encouraging
banks to look for foreign investors, hoping their
expertise and experience will help
bridge the gap between
China's banking sector and its international
competitors. Foreign banks, for their part, are
increasingly opting for equity investment as an
effective way of penetrating the market.
According to a PricewaterhouseCoopers
report released in September, partnerships with a
local bank ranked as the second-most popular 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% of total banking
capital, CBRC statistics indicate.
But the
prices paid for these stakes have been criticized
by some analysts, who complain the shares are
being sold too cheaply to foreign strategic
investors as well as public investors during
initial public offerings (IPOs).
Skeptics
say the prices should 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 justified the
discounts.
But Liu defended the price
levels, underlining the expected contribution
these foreign investors would make, and the
potential risks they were taking. The purpose of
encouraging these investors was to diversify the
banks' shareholder structure and reduce their
reliance on state coffers, as well as to improve
their competitiveness through partnerships, he
said.
He added there were strict criteria
to ensure investors did their jobs, including a
minimum investment requirement of 5%, a three-year
minimum partnership period, banking expertise and
participation of the foreign investor in the
bank's board or management.
"So the
likelihood of strategic investors profiting
through speculation is very slight. They will have
to work hard and improve the banks' performance
with their Chinese partners," Liu said. "All these
factors must be considered in terms of pricing."
The official also defended the IPO price
for China Construction Bank. The issue price for
the IPO in October was HK$2.35, representing a
price-to-book value ratio of 1.96 times. That was
among the higher price range for large Chinese
state-owned companies that have listed overseas in
the past five years, and was even higher than the
IPO price for some European banks, he noted. "This
was an internationally acknowledged successful
price level," Liu said.
The
appropriateness of the bank's initial selling
price was also reflected in the share-price trend
for two months following listing, he said. CCB
shares have risen steadily by 8.5% to HK$2.55. The
issue price is considered too low if the share
price rises by more than 30% within two months,
but too high if it falls below the issue price.
"This demonstrated that [the bank was] properly
priced, not overpriced or under-priced," Liu said.
The official also dismissed worries that
the listings, which raised huge amounts of cash,
would give Chinese banks fresh impetus to increase
hasty lending. Stricter supervision, the
constraint of capital adequacy requirements and
enhanced risk management at the banks make it
unlikely that they will start lending blindly
again as they did in the past, he said.
