GE Capital pulls out of bank deal
Updated: 2007-10-24 10:47
GE Capital International Financing Corp Inc has terminated a share subscription agreement with Shenzhen Development Bank, the Chinese lender said in a statement yesterday.
The US company pulled out of the deal, concerned it would have to pay more than the price set in a 2005 agreement, as per a rule released by the securities regulator last year.
The rule stipulates that private share sales be priced at 90 percent or more of the recent average trading price of a listed company's tradable shares.
Shenzhen Development Bank's shares closed at 41.1 yuan yesterday, which would set the price for GE Capital at six times the 5.25 yuan deal made in 2005.
GE Capital said it would pay $100 million for a 7.3 percent stake in the Shenzhen-based lender, provided the bank finished its share reform. The two said they would cooperate to develop Shenzhen Development Bank's consumer credit business in China.
But GE Capital had to put its share subscription on hold for a year during the bank's share structure reform.
"GE was not satisfied with the cooperation with Shenzhen Development Bank," said Jeff Immelt, GE's chairman and CEO. "China's financial sector is still in an early development stage, and GE has been continually looking for better opportunities in cooperating with other banks."
According to She Minhua, an analyst at CITIC China Securities Research, the market has changed greatly since China conducted its share structure reform.
"Companies now have to reset the value of listed companies' shares so that they're fair and find better opportunities to purchase stakes," he said.
But She said GE's withdrawal from the deal will not affect Shenzhen Development Bank as it has raised enough money on the market to fund its capital adequacy ratio.
The lender's capital adequacy ratio was 3.88 percent by the end of June. It said it will reach 8 percent by raising 2 billion yuan at the end of this year.
The bank's third-quarter net profit surged 65 percent over the same period of 2006, to 750 million yuan, helped by growing revenue from loans and services, it said in a report released on Monday.
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