Citi sells Guangfa Bank stake as another foreign bank exits a JV

Written by Denis Suslov || 24 Mar 2016

In early March Citibank announced that it would sell-off its 20% stake in China Guangfa Bank to China Life insurance for USD 3 billion, almost five times more than what the US bank paid for the stake in 2006.

It is one more case of a foreign bank disposing off its stake in a Chinese bank, following Deutsche Bank’s sale of 20% Huaxia Bank stake in December 2015.

Interestingly, at the time of investment, the deal was rather different from other foreign investments in China's banking sector, as Citi lead a consortium of companies, rather than being a single investor. Furthermore, Citibank's stake was only 20%, but the bank was given operational control, probably because Guangfa Bank had a number of debt problems when Citi invested, and the American bank was able to push for better terms.

Though Citibank is exiting Guangfa Bank now, the stake was not only good for the bank financially, but also helped strategically, although indirectly - it was one of the first banks to be allowed to issue sole-branded credit cards and generally Citibank is one of the more successful foreign banks in China. Industry observers attribute the favorable regulatory treatment to the investment Citi made in Guangfa Bank.

Many of the approximately 20 original foreign investors in Chinese banks have been selling off in the last five years and most have completely disposed of their stakes, with the only exception of HSBC, which still holds its 19% share in the Bank of Communications.

Though most of the investors initially considered this investment to be a strategic one, it didn't really help banks to gain the foothold that they had hoped in the Chinese market, but it turned out to be a good financial investment with most foreign banks at least doubling their investment and a few, getting a nearly 5x return.

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