Shenzhen bank mulls new reform plan
(Shenzhen Daily)Updated: 2007-03-26 16:25
Shenzhen Development Bank, controlled by US buyout firm Newbridge
Capital, may propose a plan to make all its stock tradable, seeking to remove an
obstacle to growth after earnings quadrupled last year.
The Shenzhen-listed bank may drop a provision that links compensation for holders of tradable shares to stock price movements, said the bank's chairman Frank Newman last Friday. Newbridge owns 17.9 percent of the company, all in non-tradable shares, and appointed Newman in 2005.
Holders of tradable stock have rejected two compensation plans, making Shenzhen Development the only publicly traded bank to fail to complete reform. The deadlock means the bank can't sell shares to bolster a key capital ratio that's fallen to less than half the required level.
"Everyone wants to push ahead on this issue. Both sides lose out the longer the share reform problem drags on and affects the bank's expansion plans,'' said Yuan Lin, a Beijing-based analyst at BOC International Holdings, the investment banking arm of Bank of China Ltd.
Shenzhen Development's capital adequacy ratio, a measure of financial strength, stood at 3.7 percent as of December 31, below the 8 percent required by the banking regulator.
In July, stockholders rejected Shenzhen Development's latest plan to make tradable 536 million shares. Owners of tradable stock were offered 0.48 yuan (6 US cents) in cash for every 10 shares they own, payable if the stock traded outside a given range over a 60-day period. The condition may be removed in the new plan, Shenzhen bank also said in a statement Friday.
"The stock conversion problem is very important to the bank, and we're working hard to promote discussion among the different parties," said Newman.
Officials at San Francisco-based Newbridge and Shenzhen Development have met with China's securities regulator and stock exchange about the new proposal.
At least 90 percent of China's more than 1,300 publicly traded companies have completed the program to make more than US$200 billion of mostly State-owned equity tradable. Holders of non-tradable stock must compensate those with tradable stock by giving them cash or shares.
Shenzhen Development and 39 other publicly traded companies that failed to complete share reforms had the limit on their daily price movements cut by half to 5 percent starting January 8. They are also barred from selling new shares, hampering their ability to raise funds.
The bank March 21 said profit surged to 1.3 billion yuan last year, from 311 million yuan in 2005. Earnings rose on higher loan margins and reduced bad-debt provisions, the bank said.
Newbridge paid 1.2 billion yuan for the Shenzhen Development stake in May 2004, becoming the first foreign firm to control a domestic bank. The holding is now worth 6.8 billion yuan, based on the lender's market capitalization.
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