China Life Insurance to buy US$2.7 billion of shares in affiliate Guangfa Bank

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China Life Insurance said it would subscribe to 17.5 billion yuan (US$2.7 billion) of China Guangfa Bank’s shares to maintain its position as the largest stakeholder in its affilitate, as the Guangdong-based lender is poised to raise funds by issuing stock to new investors.

China Life will buy about 2 billion shares of China Guangfa Bank at about 8.81 yuan each, a deal which would prevent its 43.7 per cent stake in the bank from being diluted. In total, China Life will invest no more than 17.5 billion yuan in the share placement, it said in a filing to the Hong Kong stock exchange.

The exact amount and number of shares involved are still subject to change, China Life said, as they are still pending supervision procedures governing the sale of state-owned assets. State-owned China Guangfa Bank’s plan to issue new shares, which was announced separately last month, is conditional on Ministry of Finance approval.

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“The transaction will help deepen the strategic collaboration between [China Life and China Guangfa Bank], and will enhance the company’s overall competitiveness,” China Life said in an announcement.

The insurance giant’s announcement followed China Guangfa Bank’s disclosure in April that its board of directors had approved a plan to issue new shares valued at not more than 40 billion yuan. The new shares will be issued and traded on the Beijing Equity Exchange.

China Guangfa Bank reported net profit of 13.8 billion yuan for the full year of 2020, up 9.8 per cent from the 12.6 billion yuan recorded in the previous year. Its non-performing loan ratio stood at 1.55 per cent.

With branches in 25 provinces, the regional lender has 360,000 corporate customers, 48 million individual customers, 51 million mobile banking customers and 89 million credit card customers, according to its 2020 annual report. It opened a branch in Hong Kong last year.

Other shareholders in the bank include Citic Trust, State Grid Yingda International Holdings, the financial services unit of power transmission giant State Grid Corp.

China Life Insurance has upped its stake in the regional lender to 43.7 per cent after it bought the minority stake divested by Citigroup in 2016 for about 19.7 billion yuan.

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