HSBC Holdings wants to increase its stake in China's Bank of Communications over the next 12 months, BoCom's chairman said on Thursday.
Jiang Chaoliang, chairman of Bank of Communications' Chairman, the country's fifth-largest bank by assets, said HSBC would raise its current 18.6 percent stake in the Chinese bank over the next year and would not be deterred by the bank's rising share price.
HSBC has the right to increase its stake and I believe it will definitely increase its stake, Jiang told a group of reporters during the Communist Party Congress in Beijing.
I think you won't be asking me this question by this time next year, said Jiang in response to questions on the timeframe when HSBC would increase its stake in BoCom.
In 2005, HSBC bought a 19.9 percent stake in BoCom for $1.75 billion (858 million pounds), which was diluted to 18.6 percent early this year when BoCom floated shares in Shanghai market, making it a dual-listed bank in both Hong Kong and Shanghai bourses.
No matter from technical, supervision or legal perspectives, I don't see any obstacle for HSBC to increase its stake in BoCom currently, he said.
I think this should be completed by this time next year, he said without elaborating.
In response to Jiang's comments, HSBC said in an e-mailed statement to Reuters that HSBC continues its discussions with BoCom regarding restoring its shareholding to 19.90 percent.
We have no further details to announce for the time being, HSBC added in the statement.
20 PERCENT OR 40 PERCENT?
When HSBC bought a 19.9 percent stake in BoCom in 2005, the Shanghai-based Chinese bank agreed that HSBC would have the option to raise its stake to 40 percent between 2008 and 2012, subject to the Chinese government's approval.
Currently, a single foreign investor can only hold up to a 20 percent stake in a Chinese bank, while overseas investors combined can have no more than a 25 percent stake in a domestic lender.
Foreign banks have been lobbying Beijing to lift or increase such an investment cap.
For instance, Citigroup Inc sought special permission from the Chinese government for about a 50 percent stake purchase of Guangdong Development Bank last year, but it was eventually allowed only a 20 percent stake in the southern Chinese bank.
It's unlikely that Beijing will lift or increase the investment cap for all foreign banks in China in the short term, but it's still hopeful for an individual foreign bank to seek special permission, said a foreign banker in China. On Thursday, Jiang did not elaborate on whether HSBC would increase its stake to 19.9 percent or 40 percent in the next 12 months, but he noted that the share price would not be a concern.
Price should not have a big impact (on the deal) ... Even if our H-share price reaches HK$30-40 apiece, said Jiang.
A source close to BoCom told Reuters that the Chinese bank had set up a special team to work out a plan to allow HSBC to increase its stake eventually to 40 percent.
Jiang said BoCom was interested in expanding outside of China, with an overseas focus in the United States, Europe and the Asia-Pacific region, but he also mentioned India, South Africa and Brazil as possible destinations.
On Wednesday, Jiang reportedly said he expected the bank to post a 63.1 percent surge in profit this year, topping 20 billion yuan ($2.66 billion), but the bank later issued a statement saying the figure was a target only.
In response to Jiang's comments on its 2007 earnings, Goldman Sachs reiterated a buy rating on BoCom in a report to its clients dated October 18.
(Additional reporting by Rita Chang in Hong Kong)