First loans made under new acquisition financing rules

China Development Bank has made the first loan to finance an acquisition since the promulgation of new rules at the end of last year.

The bank provided a loan of Rmb1.63 billion (US$238.5 million) to help fund CITIC Group and CITIC Guoan Group's investment in Baiyin Nonferrous Metal (Group). The loan will make up about half of the total investment in the producer of nonferrous metals, which is located in Lanzhou, Gansu Province.

The loan was the first to be extended since the Guidelines on Risk Management of Acquisition Loans of Commercial Banks were issued by the China Banking Regulatory Commission (CBRC) on December 6 2008. The Guidelines were widely expected to provide impetus for the development of domestic commercial banking operations and also stimulate China's M&A market.

The second loan was reported in February, when Industrial and Commercial Bank of China (ICBC) gave Rmb400 million to finance Shanghai Bailian Group's acquisition of Lianhua Supermarket chain; at the beginning of March, Bank of Communications promised Rmb750 million for Baosteel's acquisition of Ningbo Iron & Steel Co.

Shortly after that, ICBC made an agreement with the Tianjin Property Rights Exchange to provide M&A loans to local companies. The bank is following in the footsteps of two banks in Shanghai, which in January signed memoranda of understanding as a precursor to their own acquisition financing activities.