HONG KONG (Reuters) -International Business Machines will join a Citigroup-led consortium bidding $3 billion for control of China’s Guangdong Development Bank, sources familiar with the matter said on Monday.
IBM, the world’s largest technology services company, would take a 5 percent stake in the troubled southern Chinese lender if the Citigroup bid was successful, the source said.
Citigroup and France’s Societe Generale have been locked in a year-long takeover battle for the Chinese lender, with sources saying both are bidding about $3 billion for 85 percent of GDB.
China, which is set to fully open its banking sector to foreign competition under WTO obligations next month, has attracted nearly $21 billion in financial services industry investments since 2001, according to Boston Consulting Group.
IBM would join a consortium that sources said included top life insurer China Life Insurance Co., which would take a 25 percent stake if Citigroup wins.
“It is IBM’s practice not to comment on rumor or speculation,” an IBM spokesman said in an email, while officials at Citigroup and GDB declined to comment.
It was unclear which part of IBM’s operations would make the investment. The company announced a $180 million China investment fund joint venture with U.S. investment bank Lehman Brothers (NYSE:LEH – news) in late October.
Top Citigroup executives including Chief Executive Charles Prince and former U.S. Treasury Secretary Robert Rubin, now a member of Citigroup’s office of the chairman, are in Hong Kong this week for meetings, sources said.
Citigroup is seeking 20 percent of GDB, which is the maximum individual stake allowed by an overseas owner in a mainland bank under Chinese law, which also caps total foreign ownership in a domestic lender at 25 percent.
GDB is a top client for IBM, which supplies more than 80 percent of the lender’s IT systems and devices, a technology industry source said on Monday.
Citigroup last year won preliminary approval to take a stake larger than 20 percent in GDB, but that potentially precedent-setting arrangement was later knocked down by regulators, re-opening the bidding with SocGen.
“Everyone would have liked to go down the route Citigroup was planning if they could. Any foreign bank going into China would like to have management control,” said Peter Tebbutt, a senior director in the Asia Pacific financial institutions group of Fitch Ratings.
“Chinese banks generally need a lot of work in systems and commercial orientation and culture, and you need to have control to make those changes,” he said.
The drawn-out proceedings have been marked by recent media reports declaring Citigroup the winner, but SocGen has denied the stories and called for greater transparency in the decision.
Citigroup and SocGen are attracted to GDB’s more than 500 branches, rather than the lender’s weak financial shape.
Citigroup is also in talks to increase its stake in Shanghai Pudong Development Bank (600000.SS) to 20 percent from below 5 percent, and stakes in both banks would give the firm a footprint in two of China’s richest markets.