US Banks Jostle For China Banks' IPO
US banks are currently contesting to advise on the IPO
of China Construction Bank in Hong Kong and New York,
and it looks like the leaders are Citigroup and Morgan
Stanley. This IPO, estimated at more than US$5 billion,
will be one of the biggest IPOs of 2004 or 2005.
Sources say that one or both of the investment banks
would be appointed as advisors to Chinese domestic firm
China International Capital Corporation, a joint venture
between Morgan Stanley and China Construction Bank. The
decision is not definite and could be reversed at anytime.
Along with Bank of China, China Construction Bank has
recently received US$45
billion from the Chinese government to prepare them
for IPOs in New York and Hong Kong. The objective is to
help the two state-owned banks write off bad loans made
to other state-owned enterprises, and to convert them
into shareholding business entities attractive to Chinese
and non-Chinese investors.
Initial indications are that the Chinese government is
focusing its finance reforms on only Bank of China and
China Construction Bank. The two other banks among the
four majors, China Agricultural Bank and Industrial and
Commercial Bank of China, are, comparatively speaking,
less healthy and would require large and intense rescue
efforts to convert them into attractive financial business
entities. At the current stage, the government's thinking
seems to be that China can now only support two banks
which can compete internationally, but not four.
China's financial sector will be thrown open to international
competition on Dec. 1, 2006, which is why the Chinese
government is moving fast in this area. At that date,
foreign banks will be allowed to compete in commercial
and retail lending and services, and under WTO guidelines,
the Chinese government will not be allowed to discriminate
against them.
In order to offer a wider range of services and diversify
revenue sources, Bank of China and China Construction
Bank will enter or expand other areas of business such
as investment banking and retail lending, instead of just
relying on commercial lending..
One of the biggest beneficiaries of this will be Citigroup,
which has a strong presence in investment and retail banking.
Citigroup already is a shareholder in Taiwan
and Hong Kong banks which are positioning themselves
for entry into China. Because of the Closer
Economic Partnership Agreement (CEPA) signed between
the Hong Kong SAR and China in 2003, Hong Kong registered
business entities get preferential treatment entering
the China market.
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