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CDB may acquire Stockfly in a bid to diversify

By Wang Bo (China Daily)
Updated: 2009-10-15 07:55

China Development Bank (CDB), a State-controlled lender mainly focusing on funding the nation's major infrastructure projects, might acquire Stockfly Securities as part of an effort to diversify into a financial conglomerate, local media reported.

Stockfly Securities, a mid-sized brokerage affiliated to China Aviation Industry Corp, said it planned to sell its 100 percent stake to "a major State-owned commercial lender with net assets not less than 300 billion yuan", for 1.15 billion yuan ($168 million), according to separate statements the firm's five shareholders posted at Tianjin Property Rights Exchange.

The move is a clear implication confirming earlier rumors that CDB was eyeing to buy into the Beijing-based brokerage, as it is deemed to be the only prospective buyer possessing the requirement in the statement for sale.

"The two parties earlier inked a memo on the deal, and the final result could come out within the year," the Chinese language Caijing Magazine reported, citing unnamed sources close to CDB.

CDB, a policy bank that is seeking transformation into a commercial lender, is following other major domestic banks in building up its own investment banking platform. Major Chinese banking giants, including Bank of China, Industrial and Commercial Bank of China, China Construction Bank and Bank of Communications, have all set up their own securities institutions in Hong Kong.

Related readings:  CDB to set up offices in Russia, Egypt  CDB to issue RMB bonds in Hong Kong  HK grants banking license to China Development Bank  CDB posts 20.8b yuan in net profit last year

The bank, which failed to establish its own investment banking arm because of regulatory limits, is taking the current buyout as a key step to diversify its business.

The bank planned to set up two subsidiaries - an investment bank and an investment company - in an effort to expand into all-around financial business. The investment arm was launched in August, focusing on private equity investment as well as financial and investment consultancy services.

Industrial insiders said the buyout, at 1.15 billion yuan, is not pricey, but because of Stockfly's limited size and business strength, it would take time for the CDB's investment banking business to develop into a full-fledged proposition.

CDB is the only domestic commercial lender allowed to underwrite corporate bonds, while other banks are confined to underwriting short- and medium-term bills and financial debts.