BEIJING - Both
Barclays and China Development Bank (CDB) stand to
gain enormously from a strategic partnership they
signed on Monday.
Under the deal, China
Development Bank, one of the country's policy
banks, will initially invest 2.2 billion euros
(US$3.03 billion) in Barclays by acquiring 201
million new Barclays shares, or 3.1% of Barclays
shares, at 7.2 pounds sterling ($14.85) apiece on
August 14.
And, if the Barclays bid for
ABN Amro goes through, the Chinese
bank
will invest a further 7.6 billion euros in
Barclays at 7.4 pounds per new share to fund the
24.8 billion euro cash component of Barclays'
revised offer to the Dutch bank. This will make it
the largest ever single overseas acquisition by a
Chinese company.
This comes within two
months after China's state foreign-exchange
investment company invested $3 billion, out of the
country's $1.33 trillion foreign reserve, in
Blackstone Group, a US private-equity firm. The
Chinese government now encourages outbound
investment as one way to dispose of the country's
ever growing foreign-exchange reserves.
Barclays, an England-based financial
institution, is now in a battle with a European
banking consortium led by Royal Bank of Scotland
to acquire ABN Amro.
Although ABN
executives have shown their preference for
Barclays, which plans to merge ABN's business to
build a leading global bank, the consortium's
offer, higher and almost entirely in cash, seems
more attractive to some ABN shareholders than
Barclays' original all-share offer.
The
investment from CDB, as well as from Singapore's
state-owned investment firm Temasek Holdings, will
add muscle to Barclays' bid. Temasek Holdings
announced on Monday that it plans to buy a 975
million pound stake in Barclays, representing 2.1%
of the bank's existing share capital, with an
additional 1.5 billion pound stake set aside on
the condition that Barclays' planned merger with
Dutch-based ABN Amro Holding NV is successful.
ABN said it welcomed the strategic
investment in Barclays from China and Singapore,
and added that it would examine both offers in a
fair and transparent manner.
"The proposed
strategic cooperation with CDB further enhances
the growth opportunities of the combined group in
the attractive Asia market and can result in the
creation of additional long-term value for ABN
shareholders," the bank said.
Barclays
chief executive John Varley said the prospect of
CDB becoming a major investor in Barclays does not
bother him. "I am comfortable. It's by far the
biggest external investment ever made by China,
and it's very good for Barclays," Varley said,
adding that the deal would give his bank
unprecedented access to the Chinese market.
According to the agreement, CDB may have
up to an 8% stake in Barclays in the future and is
free to buy additional shares in the open market,
with a limit of shareholding under 10%.
For the Chinese bank, partnering with
Barclays is not purely an equity investment; it
will also benefit in terms of expertise, service
abilities and access to Barclays' global
franchise. Under the partnership, Barclays will
assist and advise CDB in its evolution into a
commercially operated financial institution. It
will provide expertise and advice in fields
including risk management, corporate governance
and IT strategy and procurement.
"This
strategic and financial collaboration is the next
step in the evolution of CDB into a commercially
operated financial institution," said Chen Yuan,
the Chinese bank's governor, adding that the
investment in Barclays represents a unique and
compelling financial opportunity.
CDB is
the first of the three policy banks that the
Chinese government has planned to transform into
commercially operated financial institutions.
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