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Minsheng set to take trust stake

By Mao Lijun (China Daily)
Updated: 2008-04-01 08:57

China Minsheng Banking Corp, the country's seventh largest bank by market value, is ready to buy a 25.56 percent stake in Shaanxi International Trust & Investment Corp to diversify its business and lessen its dependence on lending.

The bank will pay 2.34 billion yuan ($333.48 million) for 143 million A shares to be issued by Shaanxi International at 16.38 yuan apiece, Shaanxi International said in a statement to the Shenzhen Stock Exchange yesterday.

The two have already got the green light from the China Banking Regulatory Commission, according to the statement.

After the purchase, Minsheng will become the second largest shareholder of the trust company.

Shaanxi International is listed on the Shenzhen Stock Exchange. Currently its top shareholder is Shaanxi Provincial Expressway Construction Group Co, a State-owned highway construction firm.

Minsheng aims to become the largest shareholder in the trust firm in the future after the purchase, the bank said in its statement.

Its stake in the trust firm would be the same as that held by the highway construction firm, after the latter reduces its stake in Shaanxi International, the bank said in the statement.

"The bank is trying to expand into other non-traditional banking services," said Wu Yonggang, an analyst at Guotai Jun'an Securities. "Its strategy to diversify its business is very clear."

The bank, which purchased a 9.9 percent stake of US-based UCBH Holdings, the biggest bank serving the Chinese community in the United States, wants to transform into a financial holding firm whose businesses will include securities, trust products and insurance and wealth management.

The stake purchase is its latest move toward becoming a financial holding firm, analysts said. They said it makes great sense for commercial banks to take controlling stakes in trust firms as it can not only help banks diversify their businesses but also help restructure trust firms into professional wealth management institutions.

Banks have advantages over trust companies in their reliable credit, wide networks and customer resources. Being trustee of funds could bring banks considerable income and lessen their dependence on lending, analysts said.

The government removed a ban on investment in trust companies in 2006 and the CBRC began to encourage financial institutions, including commercial banks, to acquire trust companies last year.

Bank of Communications, which acquired Hubei International Trust and Investment Co in October, was the first commercial bank to invest in a trust company approved by the CBRC.

Commercial banks owning trust firms is common in developed countries as more and more commercial banks are morphing into financial holding companies, experts said.