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Analysts: Share sales don't shake bank relations

(Xinhua)
Updated: 2009-01-09 19:27

BOA's third-quarter results show net revenue of $180 million, sharply down from $3.7 billion a year earlier.

Lu Suiqi, vice director of the China Financial Research Center of Peking University, said some foreign lenders needed funds to offset ugly results elsewhere.

Lu said the sales would bring impressive profits as the Chinese banking industry had been growing steadily. For example, BOA netted $2.8 billion from its transaction, while the Li Ka-shing Foundation gained HK$4.06 billion ($520 million).

With lock-ups expiring, Chinese banks would face more sales, Lu said.

Guo said it was unlikely that in the long run all foreign lenders would sell their stakes in Chinese banks after lock-ups ended, as China and its banking industry had relatively little exposure to the financial crisis compared with their Western counterparts.

Foreign investors also expressed their confidence in China's financial market. BOA had repeatedly pledged it would not abandon "the market with the biggest potential for growth" or the opportunity for mutual beneficial business with CCB, a CCB spokesman said on Wednesday.

Li Ka-shing's foundation also referred to the selling of BOC shares as part of its routine asset and capital deployment, saying it would hold the remaining 3 billion BOC shares as a "long-term investment."

Warning on capital flight

Shi Chenli, investment banking analyst at Industrial and Commercial Bank of China, warned Chinese lenders to be cautious when offering stakes to foreign investors in the future, to prevent possible losses caused by capital flight.

"Apart from selling stakes to investors, we could consider share swaps as a way to secure long-term investment," Shi said.

He suggested Chinese banks should map out plans for foreign divestment. "Large-scale stake sales should be divided into phases. Further, business cooperation and technical support should not cease altogether."

In cases where foreign investors wanted to transfer their stakes to a third party, Chinese lenders should ensure that the investor would offer equal or better terms for partnership, according to Shi.

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