Hang Seng Bank inked an agreement yesterday to acquire a 15.98 per cent stake of the Industrial Bank in Fujian Province with 1.72 billion yuan (US$207.95 million), which enables it to become the largest overseas investor in a mainland bank.

Financing the purchase with cash, Hang Seng Bank became the first overseas bank to acquire more than 15 per cent of a mainland bank after the mainland's banking authorities lifted the limit on overseas investment in a mainland bank to 20 per cent from 15 per cent earlier this month, it said.

Hang Seng Bank's investment would be the biggest of its kind in terms of both invested capital and percentage of shareholding, it said in a statement.

It will become the largest shareholder of Industrial Bank, after Fujian provincial government, which has a 34 per cent interest, after the deal is approved by the banking authorities of the mainland and shareholders of Industrial Bank.

A member of the HSBC Group, Hang Seng Bank runs 155 outlets in Hong Kong, and five branches, a sub-branch, and two representative offices on the mainland.

GIC Special Investments and International Finance Corp have agreed to acquire 5 per cent and 4 per cent of Industrial Bank's enlarged share capital respectively. The former is the private equity investment arm of GIC, a fund management firm managing foreign reserves of Singapore and the latter, the private sector arm of the World Bank.

The price of the acquisition, 2.7 yuan (US$0.33) per share, represents 1.8 times the net asset value of Industrial Bank, based on International Accounting Standard and International Financial Reporting Standards, Hang Seng Bank said.

Headquartered in Fuzhou, capital of Fujian, Industrial Bank had total assets of 189.66 billion yuan (US$22.85 billion) at the end of last year, with 240 outlets on the mainland.

It booked net profit of 890.2 million yuan (US$107.2 million) last year.

Its non-performing loan ratio, based on five-tier loan classification standard, was 3.47 per cent at the end of last year.

According to the agreement signed yesterday, Industrial Bank, one of the 10 national joint-stock banks on the mainland, will form joint ventures with its foreign investors in the development of credit cards and unsecured personal-loan business when foreign banks are allowed to run these types of business on the mainland.

The agreement "significantly increases the opportunities to build our business on the mainland, following the gradual liberalization of the mainland's financial markets since China joined the WTO," said Vincent Cheng, vice-chairman and chief executive of Hang Seng Bank.

Gao Jianping, chairman of Industrial Bank, said the deal would enhance his bank's financial position.

HSBC and BOC International are the financial advisers of Hang Seng Bank and Industrial Bank in the deal respectively.

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