China PBOC’s Fund to Become Huishang Bank’s 2nd-Largest Shareholder

A fund managed by China’s central bank will inject 8.89 billion yuan ($1.28 billion) into Huishang Bank, becoming the commercial bank’s second-largest shareholder.

Hong Kong-listed Huishang Bank is the most exposed interbank creditor of collapsed Baoshang Bank and one of the recipients of Baoshang’s remaining assets. Deposit Insurance Fund Management Co. Ltd., a national deposit insurance fund set up to seize Baoshang, already provided 34.4 billion yuan to Huishang Bank to help cover losses from buying part of Baoshang’s good assets.

Huishang Bank’s board approved a plan to issue as many as 1.56 billion shares to Deposit Insurance Fund at 5.703 yuan ($0.73) each, the bank said Thursday in a statement. The price represents about 85% of the bank’s net asset value of 6.68 yuan per share as of the end of 2019 but a significant premium over the bank’s recent H-share price of HK$2.58 ($0.33).

Huishang Bank will also sell 176 million shares to state-owned highway construction company Anhui Provincial Communications Investment Group Co. Ltd., the bank said.

The stock sale aims to supplement the bank’s core tier 1 capital, the company said. Huishang Bank spent 15.3 billion yuan to acquire Baoshang Bank’s four branches outside Inner Mongolia. It invested 3.6 billion yuan more for a 15% stake in Mengshang Bank, a bank newly formed to take over Baoshang’s Inner Mongolia-based operations and wealth management business.

Anhui province’s State-owned Assets Supervision and Administration Commission through several subsidiaries holds a 30% stake in Huishang Bank and is the biggest shareholder. After the offering, Deposit Insurance Fund will hold an 11.22% stake as the second-largest shareholder.

Chinese financial regulators took control of Inner Mongolia-based Baoshang in May 2019 citing serious credit risks. The bank was used as a piggy bank by its largest shareholder, Tomorrow Holding Co. Ltd., a sprawling conglomerate once controlled by fallen tycoon Xiao Jianhua, to misappropriate billions of dollars, leaving the bank with a financial black hole of 220 billion yuan and severe credit risks to its customers.

Xiao fled to Hong Kong to avoid Chinese mainland authorities’ corruption crackdown and was placed under investigation in January 2017.

The collapse of Baoshang sent tremors through the country’s vast interbank market and left some financial institutions nursing heavy losses, including Huishang Bank, which lost billions of yuan on its investments with Baoshang.

Contact reporter Denise Jia (huijuanjia@caixin.com) and editor Bob Simison (bobsimison@caixin.com)

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