Yue Xiu Group is open for more acquisitions in the banking sector after completing a US$1.5 billion deal for a Hong Kong lender, joining the growing array of Chinese firms that are seeking opportunities in the lucrative financial services industry.
The conglomerate backed by the Guangzhou government will consider taking over mainland or overseas banks to beef up its newly acquired Chong Hing Bank Ltd. (01111.HK), Chairman Zhang Zhaoxing said in a Hong Kong interview.
“Whether the opportunities come from the mainland or abroad, as long as it is beneficial to the development of the bank, we shall consider mergers and acquisitions a good option,” Zhang told EJ Insight. “But it won’t be another Hong Kong bank.”
Chong Hing Bank, a 66-year-old lender that was previously a family-controlled entity, is seeking to upgrade offices and open more branches on the mainland, initially in the southern Guangdong province.
Zhang expects Chong Hing Bank to capitalize on the provincial government’s efforts to set up a free trade zone that resembles the country’s first such testing ground in Shanghai.
“Guangdong’s proposed free trade zone may even be bigger than the one in Shanghai with no less influence. This may bring opportunities to Yue Xiu’s financial business,” Zhang said, referring to an area that may cover Guangzhou’s Nansha, Zhuhai’s Hengqin and Shenzhen’s Qianhai.
Chong Hing Bank is also ready for cross-border financial services as it recently obtained 1 billion yuan quota under the Renminbi Qualified Foreign Institutional Investor (RQFII) scheme that allows offshore yuan to be invested in onshore securities in mainland China.
As expansion takes off, Zhang said the lender may sell subordinated bonds to replenish capital.
“Capital consumption is huge for any bank and financial institution; so, how to expand the capital base is something that the bank needs to consider,” Zhang said. He said the lender, however, will refrain from any rights share issue for at least a year in line with the takeover agreement.
Yue Xiu had sought a foothold in Hong Kong by paying HK$11.6 billion for 75 percent of the city’s smallest family-run lender, which along with its peers has struggled amid fierce competition from both foreign and cash-rich mainland rivals.
The Chong Hing Bank takeover marked the second deal in recent years by a mainland entity for a Hong Kong lender. Earlier, China Merchants Bank paid US$4.7 billion for Wing Lung Bank, in a deal completed in 2009.
Chong Hing Bank shares have slumped 28 percent since Oct. 25 last year when the long-anticipated acquisition was announced. Investors took profits after a steep run-up in the company’s stock price earlier. Trading in the shares has been suspended since Feb. 6.
In addition to the head office in Hong Kong, the bank currently operates a network of 51 branches in its home base, as well as three others outside the territory: in Macau, San Francisco and Shantou, a city in China’s Guangdong province. It also has representative offices in Guangzhou and Shanghai, according to its website.
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