Citigroup Inc's status as the largest shareholder in Shanghai Pudong Development Bank Co, China's No 2 publicly traded lender, may be trumped by Shanghai International Group Co, a State-owned investment company.

 

Six of Pudong bank's shareholders plan to sell their entire stakes to Shanghai International, pending regulatory approval, the lender said in a statement on Wednesday.

 

According to Bloomberg calculations, that would give the Shanghai government-owned investment company a 21.45 percent stake valued at 8.6 billion yuan (US$1.06 billion).

 

Citigroup, the world's biggest bank by market value, said last month it was quadrupling its stake in Pudong bank to 19.99 per cent, the maximum permitted under Chinese regulations and at the time the largest of any shareholder.

 

The New York-based lender, which is leading a bid of about US$2.7 billion for 85 percent of Guangdong Development Bank, has trailed rivals such as HSBC Holdings Plc in China's US$1.7 trillion household savings market.

 

"This move will ensure that a Shanghai government-controlled company will control Pudong Bank, rather than Citigroup," said Tang Chuan, a Hong Kong-based analyst at KGI Securities Co.

 

"Pudong Bank may not be its focus now, as the US bank may control and have a louder voice in Guangdong Development Bank."

 

Shanghai International previously owned a 4.73 percent stake in Pudong bank. The six shareholders, all controlled by the Shanghai Government, that are selling their stakes own a combined 16.72 percent, or 654.6 million shares, according to the lender's third-quarter profit statements.

 

The sellers' combined stake is valued at nearly 6.7 billion yuan (US$830 million), based on the stock's closing price of 10.25 yuan (US$1.27) on Wednesday.

 

Shanghai Industrial Development Co, the city government's investment arm, said in a statement on Wednesday that it plans to sell its entire 1.57 percent stake in Pudong Development Bank Co for 338.3 million yuan (US$41.77 million).

 

Shenergy Co, Shanghai State-owned Assets Operation Co, Orient International (Holdings) Co, Shanghai Guoxin Investment Development Co, Shanghai Jiushi Corp are the other sellers, according to Wednesday's statement.

 

In return for the US bank's investment last month, Pudong bank, which has 335 branches nationwide, allowed Citigroup to invest in another Chinese bank. In 2003 when it bought a 4.6 percent stake in the Shanghai lender, Citigroup agreed not to buy into any other Chinese banks.

 

"It's too early to say what impact this will have on the operations of the bank," Shen Si, a Shanghai-based vice-president of Pudong bank, said. "We received notice that six shareholders have signed agreements to sell stakes to Shanghai International Group, but there are no details of the size of the stakes they plan to sell and the value."

 

Citigroup's Hong Kong-based spokesman Richard Tesvich declined to comment.

 

The US bank is bidding for Guangdong Development against groups led by France's Societe Generale and Ping An Insurance (Group) Co, China's second-largest insurer, according to people familiar with the plan.

 

Citigroup, one of three bidders, is offering to buy less than 50 percent, the people said.

 

(China Daily January 6, 2006)