Singapore's second largest lender, United Overseas Bank (UOB), said it will buy a 15.4 per cent stake in China's Evergrowing Bank for about US$114 million.
This follows a letter of intent that UOB signed in April 2007 to make a strategic investment in the Chinese lender. The acquisition will still need the approval of authorities in China. UOB said it will fund the purchase in cash using internal resources. After the deal is completed, UOB will become Evergrowing Bank's second largest shareholder.
Evergrowing Bank is a regional lender, but analysts said the move will help UOB familiarise itself with the Chinese banking market.
The investment is not expected to have a material impact on earnings or the net tangible assets of UOB for the current financial year.
"No global bank can afford to ignore China or India, so this could be sort of testing the waters. With Evergrowing, UOB can test how the Chinese market would react to the offerings it could potentially provide at a later point," said J Ananda Kumar, Associate Director at Fitch Ratings.
Evergrowing Bank, which is not listed, is a small regional lender in China, based in Yantai, Shandong. It has branches in major cities in the country, including Beijing, Shanghai and Shenzhen.
Late last year, UOB received the green light from Chinese authorities to operate a locally-incorporated bank in the country. This will allow it to tap into trillions of dollars of household savings in China.
UOB has also been seeking opportunities in the region. Just last week, UOB said it was planning to buy over the 38.9 per cent stake in Indonesia's PT UOB Buana that it did not already own. The additional stake is estimated to cost some US$330 million.
In January last year, UOB also agreed to buy a 10 per cent stake in Vietnam's Southern Commercial Joint Stock Bank for about US$33.7 million. - CNA /ls
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