Thursday, June 14, 2007

Dalian Bank to Go Public After Scotiabank Deal Closes

The Globe and Mail, John Partridge, 14 June 2007

The Chinese bank that Bank of Nova Scotia is buying into is poised to go public on one of the world's hottest stock markets when the deal closes, China's Ministry of Commerce indicated Thursday.

A statement the ministry's web site suggests that closing is imminent for the deal, which will see Scotiabank buy 20 per cent Bank of Dalian Co. Ltd. – the most a foreign firm can buy in a local bank under Chinese regulations – and the World Bank's International Finance Corp. (IFC) buy an additional 5 per cent.

Citing “inside sources,” the statement said the Canadian bank has “completed [its] due diligence report” on Bank of Dalian, which, located in northern China, is billed as the country's seventh-largest commercial bank, with almost $8-billion (U.S.) in assets and about 1,650 employees.

Dalian is preparing to issue stock that will trade on the Shanghai's so-called A-share market, with the issue being sponsored by China Securities Co. and its corporate parent CITIC Securities, the statement said.

It also indicated Scotiabank and the IFC are paying a combined 2.5-billion yuan/renminbi for their position in the bank. That translates into about $350-million (Canadian), with the Canadian bank's share working out to about $280-million.

Scotiabank officials could not immediately be reached for comment.

The company has the most extensive international presence of any Canadian bank, with a string of operations in the Caribbean and Central America, Mexico, Latin America and, increasingly, Asia. They accounted for about 28 per cent of the $1.03-billion in profit it reported in the second quarter of this year.

China is not the bank's only destination in Asia. In April, for instance, it unveiled a deal to buy 24.99 per cent of Thanachart Bank, Thailand's eight-largest bank and leading automobile lender, for $240-million and is seeking regulatory approval to boost this stake to 449 per cent.

Scotiabank has acknowledged that pushing deeper into the Far East is tougher than expanding abroad closer to home. "We don't have the established presence that we do in the Caribbean and the Western Hemisphere,” Rob Pitfield, the executive vice-president who heads its international division, told The Globe and Mail in April shortly after the Thai acquisition was unveiled.

As well, there are not a lot of good banks for sale and there is “huge” competition for those that are, he said adding that, what the bank is trying to do is “put . . . stakes in the ground, which can grow to be meaningful entities."

Whatever else the China deal brings Scotiabank, Dalian's Shanghai listing will give the Canadian company some exposure to one of the hottest, if not the hottest stock exchange on the planet.
Dow Jones Newswires, 13 June 2007

China's Bank of Dalian aims to list A shares on a domestic stock exchange in 2008 after it sells a stake to foreign investors, an executive at the bank said Tuesday.

The bank's move follows the pattern of several large Chinese banks. China Construction Bank Ltd., Bank of China and Industrial & Commercial Bank of China Ltd. all sold stakes to foreign banks before listing in Hong Kong.

Bank of Dalian has hired Citic Securities Co. (600030.SH) and its unit, China Securities Co., as underwriters for its initial public offering, said the executive, who declined to be named. China Securities is 60%-owned by Citic Securities.

The person declined to disclose any more details about the planned domestic listing.

The city commercial bank, formerly known as Dalian City Commercial Bank, plans to sell a stake of up to 25% to Canada's Bank of Nova Scotia and International Finance Corp., a person familiar with the deal said earlier this year.

"We expect to finalize the deal as soon as possible, which would help boost capital adequacy and make the listing go more smoothly," the Bank of Dalian executive said Tuesday.

Other smaller Chinese banks following the route of bringing in foreign investors before floating shares include Bank of Beijing Co., which said in August it intended to list shares after ING Group NV took a 19.9% stake, and Shanghai Rural Commercial Bank, which said in November it planned to go public in the next three years after Australia & New Zealand Banking Group Ltd. acquired a 19.9% holding.

Bank of Dalian, based in northeast China, has more than 80 outlets, according to its Web site. Its nonperforming loan ratio was 4.2% at the end of 2006 and its capital adequacy ratio was 8.7%, above the regulatory minimum of 8%, the state-run Shanghai Securities News reported in January.
• 19 March 2007 Scotiabank Seeks Minority Stake in Dalian Bank

• 7 January 2007 Scotiabank is Likely to Invest in Dalian Bank

• 23 October 2006 Scotiabank is Vying for Bank in Dalian;