By Wang Xu (China Daily)
Updated: 2008-03-05 10:42

Shanghai Pudong Development Bank (SPDB) is poised to start talks with Citigroup Inc for stake sale, chairman of the Shanghai lender said.

"We agreed earlier to start talks about the share transfer in 2008," said Ji Xiaohui, chairman of the bank and CPPCC member. "Citigroup will have to take the market price as reference to comply with the regulations of the China Securities Regulatory Commission."

New York-based Citigroup holds about 4 percent of the SPDB and reportedly aims to increase its holding to 19.9 percent. Citigroup bought 5 percent of the Shanghai-based lender in 2005 but its stake was diluted after the company sold new shares in November 2006. The two lenders have cooperation in investment banking.

Citigroup is trying to raise the contribution of its international business to revenue from 44 percent at present to 60 percent, and China has been identified as a thrust area for long-term growth. The company also has a 20 percent stake in Guangdong Development Bank, which has more than 400 outlets across the nation.

"We are confident our plan to issue additional shares will be approved," said Ji. "After the sale, we won't need to approach the capital markets for a major fund-raising for three years."

SPDB said last month that it planned to issue an additional 800 million shares to raise up to 32 billion yuan to bolster capital. The lender's capital adequacy ratio had fallen to 8.4 percent - near the required minimum level of 8 percent - by the end of the third quarter last year after rapid business expansion.

The plan had triggered criticism and sent the bank's share tumbling as shareholders questioned the need for such a large-scale fund-raising and worried it would dilute per-share earnings.

"The plan is based on careful calculation, which is designed to meet the capital needs for the next three years," said Ji. "Besides, we have also earmarked some earnings to bolster growth."

Ji also said SPDB has no plans to acquire Bank of Shanghai. Some analysts had speculated earlier that SPDB might use the new funds to buy the smaller lender.