ANZ announced on Tuesday that it will sell its entire 20% stake in unlisted Shanghai Rural Commercial Bank, underscoring the diminishing appeal of owning a majority stake in a Chinese lender.
The Australian bank said it will sell the stake to China Cosco Shipping and Shanghai Sino-Poland Enterprise Management Development for A$1.83 billion ($1.32 billion), marking the end of a nine-year strategic partnership with the Shanghai-headquartered bank since it invested A$318 million in September 2007.
The sale was completed at a price-to-book ratio of 1.1 times based on the mainland lender’s net asset value at the end of 2015. The multiple is likely lower using last year’s figures, suggesting that the Australian bank has sold the stake close to book value.
But ANZ has still made a decent profit from the deal. After protecting its stake with a A$250 million investment in Shanghai Rural Commercial Bank's right issue in 2010, ANZ has made around A$1.27 billion of profit — giving it a return of around 223%.
The Australian bank is joining a number of global financial institutions selling their stakes in Chinese lenders as tight bank capital requirements make it more costly to own a stake in other banks.
Citigroup was the latest foreign seller of a big Chinese bank stake when it offloaded 20% of China Guangfa Bank for $3 billion in February last year, two months after Deutsche Bank sold a 19.99% stake in Hua Xia Bank to PICC Property and Casualty. Spain’s BBVA sold 4.9% of China Citic Bank to a Chinese real estate firm in January 2015.
Goldman Sachs and Bank of America Merrill Lynch offloaded their Chinese bank stakes much earlier, selling their stakes in Industrial and Commercial Bank of China and China Construction Bank, respectively, through separate block sales between 2013 and 2014.
The scale-back has not just been limited to those banks outside Asia. CIMB sold an 18.21% stake in Bank of Yingkou on December 30. The Malaysian bank said it earned an internal rate of return of 17.4% after selling the stake to Shanghai Guozhijie Investment Development for Rmb1.507 billion ($216.9 million).
For ANZ, the sale is only the latest move in an effort to trim down its exposure to Asia. The bank sold its Asia retail and wealth management business to Singapore’s DBS Group late last year.
Capital boost
The main consideration for ANZ may have been boosting its capital position, since its 11.8% tier 1 capital ratio falls behind that of larger domestic rivals such as National Australia Bank and Commonwealth Bank of Australia.
Proceeds from the stake sale could help increase ANZ’s core capital tier one ratio by 40 basis points, the Australian bank said in a statement.
But capital enhancement is far from the only reason foreign lenders have sold stakes in Chinese banks. The slowdown of China’s economy and tepid loan growth for banks has hurt profits. Beijing’s effort to keep interest rates low means banks’ net interest and profit margins look likely to remain under pressure for some years.
Tight restrictions on foreign ownership are also a problem. China imposes a 20% cap on foreign ownership of Chinese banks, leaving international players like ANZ unable to gain much bargaining power over a Chinese lender’s strategy and business direction.
From Chinese banks’ perspective, having a foreign shareholder has also become less important compared to a decade ago when these strategic partnerships provided them good learning opportunities in management and corporate governance.
These dual factors have ensured that only two foreign shareholders remain among China’s 12 joint stock commercial banks. HSBC owns a 19.03% stake in Bank of Communications, and Standard Chartered has a 19.99% stake in China Bohai Bank.
