Minsheng Banking will buy 9.9% of San Francisco-based UCBH Holdings for over $200 million in the first strategic investment by a mainland Chinese bank in a U.S. bank, the companies said on Monday.
Shares in Minsheng climbed as much as 4.2% in a strong overall market as investors hoped the deal -- its first major foreign investment -- would eventually give the bank more access to burgeoning trade and investment flows between China and the U.S. West Coast.
Nasdaq-listed UCBH owns United Commercial Bank, which focuses on the Chinese community in the United States and U.S. firms with business in China. It had $10.7 billion of assets in June, making it a tenth the size of Minsheng, which has assets of $112 billion.
Minsheng, the first private Chinese bank to list on the Shanghai stock market, has obtained an option to raise its stake to 20% by the end of June 2009, the companies said.
Exercising the option would make Minsheng the biggest shareholder in UCBH the official Shanghai Securities News said.
Analysts said Minsheng's deal was likely to be part of a string of strategic investments by cash-flush Chinese financial institutions in the United States and the rest of the world over coming months and years.
Last month, central bank governor Zhou Xiaochuan urged the country's banks to take stakes in overseas institutions, saying this would support China's foreign investment policy and balance a flood of foreign money entering the country's banking sector.
In August, Industrial & Commercial Bank of China agreed to pay $583 million for 80% of Macau's Seng Heng Bank. Last December, it bought 90% of PT Bank Halim Indonesia.
"Chinese banks are just starting to invest in the banking sectors of other countries, though many are still cautious about it," said Wu Yonggang, an analyst at Guotai Junan Securities. "The listed banks have plenty of foreign currency to spend."
Needs Regulatory Approvals
In the first stage of its deal, Minsheng would spend between $97 million and $145 million to buy 4.9 percent of UCBH, purchasing around 5.4 million new shares at $17.79 each -- a 3.2% discount to UCBH's last market price of $18.37.
That stage is expected to be completed by the end of 2007 and would help to fund UCBH's planned acquisition in China of Business Development Bank, a Shanghai-headquartered institution which serves small and medium-sized enterprises, UCBH said.
In the second phase, due to be completed by the end of next year, Minsheng would pay a further $115 million to $172 million to raise its stake to 9.9% through another share placement, a purchase of secondary market shares or both.
The deal is subject to U.S. and Chinese regulatory approvals, the companies noted. UCBH was advised by Merrill Lynch.
Minsheng's net profit soared 66% from a year earlier to 2.82 billion yuan (US$376 million) in the first half of this year, boosted by rapid loan growth as China's economy booms.
Its last closing share price of 15.81 yuan valued it at 39 times analysts' forecasts of its earnings this year, about twice the valuations of foreign banks but below ratios of around 45 times or higher for many Chinese banks. UCBH trades at around 16.3 times 2007 earnings, according to Reuters data.