Bank of East Asia Ltd (BEA), Hong Kong's fifth-biggest lender, plans to buy a minority stake in Golden Eagle Asset Management Co, seeking to tap rising Chinese demand for wealth management services, two people familiar with the situation said on Tuesday.
Initially, BEA's asset management unit will buy about one tenth of Golden Eagle from an existing shareholder, and may increase its stake in the small Chinese fund house at a later stage, one source told Reuters.
This is a short cut for BEA to enter China's fund market, said Zhang Haochuan, analyst at Z-Ben Advisors. The Shanghai-based fund consultancy, which is not involved in the talks, estimates that the deal may be valued at about 28 million yuan ($4 million) based on Golden Eagle's current size.
BEA and other foreign banks are seeking to broaden their revenue streams in China.
Rival HSBC Holdings Plc, which already owns a Chinese fund venture, started an insurance business in China last month, and plans to form a securities venture in the country.
BEA's venture talks with a small-sized mainland asset-management firm had reached a mature stage, Deputy Chief Executive Brian Li told reporters last month, declining to identify the company.
BEA's Hong Kong-based spokeswoman Salina Tong declined to comment, only saying that any venture agreement would need regulatory approval.
Golden Eagle's spokesperson could not be reached immediately for comment. The sources declined to be identified because they're not authorized to speak to the media.
BEA Union Investment Management Ltd plans to buy about a 10 percent stake in Golden Eagle from a unit of Chinese agriculture company New Hope Group, which currently holds one fifth of the fund house, the source said.
Golden Eagle, founded in 2002 in China's southern Guangdong province, is one of China's smallest fund houses with an estimated 5 billion yuan of assets under management at the end of August, according to Z-Ben Advisors. Buying into Golden Eagle would give BEA access to China's fast-growing fund market, which some analysts estimate would triple to $1 trillion in five years.
The move would also benefit BEA's banking business in China, where the government has recently allowed foreign lenders to sell fund products for commissions.
The investment would create a new business for BEA in China, said Fan Kunxiang, analyst at Haitong Securities Co. But Golden Eagle is very small, so I don't expect to see a big revenue contribution from the business in the short term.
BEA is one of the biggest foreign lenders in China, with 77 outlets in the mainland, Hong Kong and Taiwan.
The bank last month unveiled plans for an initial public offering in Shanghai next year, as China relaxes rules to allow foreign companies to be listed locally.
(Reporting by Samuel Shen, Helen Ding and Jacqueline Wong; Editing by Ken Wills)