China Merchants Bank (SH: 600036; HK: 3968; CMB) recently issued a batch of acquisition loans that totals 110 million yuan (US$16.11 million) to fund Suzhou International Development Group Corporation (Suzhou International)'s strategic consolidation on Jiangsu Dongwu Rural Commercial Bank (DWRCB).
As early as the beginning of 2008, CMB had joined Suzhou International in the acquisition of DWRCB.
DWRCB used to be Suzhou Rural Credit Association before the restructuring. Its capital adequacy ratio soared from 2.04 percent (before the restructuring taken in 2004) to 8.42 percent in 2007, while its bad debt rate dropped from 13.21 percent to 4.43 percent. Up to the end of Q3, 2007, DWRCB's deposit reached 17.6 billion yuan (US$2.58 billion) and its loans registered 13.57 billion (US$1.99 billion).
DWRCB entered the listing tutorship period at the end of 2007, and has been making preparations for business expansion. CMB and Suzhou International seized the chance to get involved.
Insiders from the CBM Banking Investment Department say that the bank planned to be DWRCB's financing investor and even launched due diligence, but at the end of the day did not enter the JV, while Suzhou International was accepted as a strategic investor. Suzhou International is Suzhou Municipal Government's financial holding platform; alongside the 110 million in loans from CMB, the remaining 120 million yuan (US$17.57 million) is from its own revenue.
This loan also offers CMB an opportunity for cooperation with DWRCB, despite the previous failure to launch a JV. CMB has been operating in Suzhou for almost 10 years. It established its Suzhou Sub-branch in 2000, which 3 years later in 2003 upgraded to a Class 2 branch, and become a Class 1 branch in 2005.
CMB currently has 10 branches in Suzhou, but lacks presence in rural areas. Therefore this investment also potentially benefits CMB's future expansion in this region.
Also according to the insider, CMB will seek future chances of cooperation, but generally the bank is operating a strategy of 'safety-first'.
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(China.org.cn by Maverick Chen, April 1, 2009)