Both Barclays and China Development Bank (CDB) stand to gain enormously from the strategic partnership they inked yesterday.

Under the deal, China Development Bank, one of the country's policy banks, will initially invest 2.2 billion euros in Barclays by acquiring 201 million new Barclays shares, or 3.1 percent of Barclays shares, at 7.2 pounds apiece on August 14.

And, if the Barclays bid for ABN Amro goes through, the Chinese bank will invest a further 7.6 billion euros in Barclays at 7.4 pounds per new share to fund the 24.8 billion euro cash component of Barclays' revised offer to the Dutch bank.

Barclays, the England-based financial institution, is now in a battle with a European banking consortium led by Royal Bank of Scotland to acquire ABN Amro.

Although ABN executives have shown their preference for Barclays, which plans to merge ABN's business to build a leading global bank, the consortium's offer, higher and almost entirely in cash, seems more attractive to some ABN shareholders compared with Barclays' original all-share offer.

The investment from CDB, as well as Singapore's Temasek Holdings, will add muscle to Barclays' bid.

ABN said yesterday that it welcomed the strategic investment in Barclays from China and Singapore, although it would examine both offers in a fair and transparent manner.

"The proposed strategic cooperation with CDB further enhances the growth opportunities of the combined group in the attractive Asia market and can result in the creation of additional long-term value for ABN shareholders," the bank said.

Barclays Chief Executive John Varley said the prospect of CDB becoming a major investor in Barclays does not bother him.

According to the agreement, CDB may have up to 8 percent stake in Barclays in the future and is free to buy additional shares in the open market, with a limit of shareholding under 10 percent.

"I am comfortable It's by far the biggest external investment ever made by China, and it's very good for Barclays," Varley said, adding the deal would give the bank unprecedented access to the Chinese market.

For the Chinese bank, partnering with Barclays is not a pure equity investment, it will also benefit in terms of expertise, service abilities and access to Barclays' global franchise.

Under the partnership, Barclays will assist and advise CDB in its evolution into a commercially operated financial institution.

It will provide expertise and advice in fields including risk management, corporate governance and IT strategy and procurement.

"This strategic and financial collaboration is the next step in the evolution of CDB into a commercially operated financial institution," said Chen Yuan, the Chinese bank's governor, adding the investment in Barclays represents a unique and compelling financial opportunity.

CDB is the first of the three policy banks which the Chinese government has planned to transform into commercially operated financial institutions.

(China Daily 07/24/2007 page13)