HSBC close to sealing £550m China deal

HSBC said yesterday it was close to buying a 19.9 per cent in China's fifth largest bank, in a deal estimated to be worth about £550m.

The sale of the stake in the Shanghai-based Bank of Communications will give HSBC the largest holding by any foreign investor in a Chinese bank, and will bring to an end a month-long period of negotiations between the two.

After initially refusing to comment on rumours of the acquisition, HSBC said yesterday that discussions were taking place but added that the deal was still subject to regulatory approval from the Chinese authorities, and requires finalisation of the terms of the deal.

Shares in HSBC, the world's second largest bank after Citigroup, rose more than 1 per cent on the news, closing at 813.5p.

The Bank of Communications is a leading player in the Chinese market, with assets of about £67bn. The deal will consolidate HSBC as the largest foreign player in the Chinese financial services market. The company already owns an 8 per cent stake in the Bank of Shanghai, as well as a 10 per cent holding in China's second largest life insurer, Ping An Insurance.

The move by HSBC is one of a series of approaches received by China's banks from overseas investors over the past year. The Chinese government has encouraged companies in the sector to find foreign investors to improve their balance sheets and help raise capital. Last month, Newbridge Capital, a US venture capitalist, took an 18 per cent stake in Shenzhen Development, while Citigroup has a 4.6 per cent holding in Shanghai Pudong Development. Singapore's DBS Group is known to be in talks with several other banks.

Lending in the Chinese banking sector is reported to have been growing at about 19 per cent a year, with debt totalling an estimated £110bn across the country.

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