Banco Bilbao Vizcaya Argentaria (BBVA), SpainÆs second largest bank, will pay Ç800 million ($1.24 billion) to increase its stake in Citic International Financial Holdings (CIFH) to 30% and in China Citic Bank to 10.07%. BBVA has also negotiated a two-year call option to buy another 5% of Citic Bank to increase its total holding to 15%. Further financial details of the deal were not disclosed.
ôThe transaction places BBVA in an unbeatable position to leverage the tremendous growth potential inherent in the Chinese banking business, creating value for its shareholders, in a deal that is accretive from the outset,ö says BBVA in a written statement.
It is a prerequisite for the BBVA investment that Gloryshare Investments, a wholly-owned unit of Citic Group and the controlling shareholder of CIFH, delist CIFH from the Hong Kong stock exchange via a scheme of arrangement. Pursuant to the proposed privatisation, CIFH was suspended from trading yesterday. It closed at HK$5.70 ($0.73) on Monday.
In November 2006 BBVA acquired 5% of Citic Bank and 15% of CIFH for a total of Ç989 million. BBVA spent Ç501 million for a 5% stake in Citic Bank with an option to increase the stake to 9.9%. The remaining Ç488 million was the outlay for the 15% stake in CIFH.
BBVA will now have the right to appoint three directors to the board of CIFH, up from the two directors it was entitled to nominate earlier. It will have the right to nominate two directors to the board of Citic Bank, up from the one it could nominate earlier. BBVA also said that the increase of its stake in Citic Bank means the investment is now strategic in nature for BBVA, rather than financial.
CIFH is an investment holding company. At the end of 2007 it had total assets of HK$132.4 billion. It owns 100% of Citic Ka Wah Bank, 15% of China Citic Bank, 50% of Citic Capital Holdings, a China-focused investment management and advisory firm, and 40% of Citic International Assets Management.
Citic Ka Wah Bank has 29 branches in Hong Kong, a branch each in Macau, Shanghai, New York and Los Angeles and a wholly-owned subsidiary, Citic Ka Wah Bank (China), which is headquartered in Shenzhen and has branches in Shanghai and Beijing. For calendar 2007 it had total assets of HK$110.8 billion.
China Citic Bank is ChinaÆs seventh largest commercial lender in terms of assets. In April 2007 it raised $5.4 billion from an IPO and listed simultaneously on the Hong Kong and Shanghai exchanges. At the end of 2007 Citic Bank had 485 branch outlets across mainland China and total assets of approximately Rmb1.011 trillion ($146 billion).
BBVA was trading at around Ç14.06 a share yesterday, marginally down from its opening price, after the deal was announced.
For the initial (2006) investment JPMorgan advised CIFH, Merrill Lynch advised Citic Bank and Rothschild advised BBVA. Lehman has stolen a march on its competitors this time round and brokered the current deal.