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 China's biggest bank by outlets, PSBC has about 40,000 branches, and
a strategic partnership could help foreign banks sell insurance and
banking products to China's vast population.
PSBC is preparing for an initial public offering next year, which
could raise around $25 billion - the record for an IPO set last year
by Alibaba Group Holding Ltd <BABA.N> - China Daily reported in
February. The pre-IPO stake sale is a stepping stone that would set
a valuation benchmark for that offering.
The Chinese government is open to selling a bigger stake in PSBC and
prefers to sell to strategic, rather than financial, investors, said
one of the individuals, who couldn't be named as the process is
confidential.
China has previously introduced strategic partners into its large
state-owned banks before massive IPOs to bolster investor confidence
and improve management best practice - though these have tended to
turn into financial investments, with European, U.S. and Asian
stakeholders selling up for a large profit.
The planned sale comes as Chinese bank shares have jumped by almost
a quarter this year on strong demand from mainland investors, and
despite China's slowing economy and the mounting bad debts of
mainland banks. A Chinese banking sector sub-index <.HSHFI> is up 23
percent year-to-date.
BNP Paribas, Temasek and UBS declined to comment. Calls to PSBC's
general office were not answered. Reuters could not ascertain the
names of other preliminary bidders.
ABOVE BOOK VALUE
The stake could be sold slightly above PSBC's book value, which is
at a slight discount to the price-to-book value of 1.26 of China's
big banks, according to Thomson Reuters data.
PSBC, wholly-owned by China Post Group Corp, the state-owned postal
service, has about 470 million clients, about equal to the combined
populations of the United States and Russia. Its total assets topped
5.58 trillion yuan ($892 billion) at the end of 2013, according to
its website. It is particularly strong in taking in deposits in
rural areas.
Industrial and Commercial Bank of China (ICBC), the country's
largest bank by assets, by comparison has 17,460 branches and 465
million retail customers.
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Global financial institutions such as Goldman Sachs, Bank of America
, Citigroup and UBS all acquired stakes in Chinese banks and
insurers in the mid-2000s, but have since exited or reduced their
stakes. While the relationships were profitable, involved some
cooperation and helped Chinese lenders become some of the world's
biggest banks, few products or strategic benefits emerged.
Goldman sold out of ICBC in 2013, ending a 7-year investment and
earning more than $10 billion in gross proceeds, making a near four
time return on its original stake. Bank of America exited its China
Construction Bank Corp (CCB) investment in the same year, reaping
$16.4 billion after a series of sales - a return of more than five
times its initial investment.
Preliminary bids for the PSBC stake were due last week, and the
parties will undertake detailed due diligence before making final
offers.
China International Capital Corp (CICC) and Morgan Stanley are
arranging the pre-IPO sale, the sources said.
(Reporting by Denny Thomas and Elzio Barreto; Additional reporting
by Fiona Lau at IFR, Deena Yao in HONG KONG, Engen Tham in SHANGHAI
and Saeed Azhar in SINGAPORE; Editing by Ian Geoghegan)
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