Bank lockup period extended to five years
April 16, 2009 | BY
clpstaff &clp articlesWritten regulations are unlikely
China's banking regulator wants foreign investors to stay locked in to their stakes in domestic banks for five years, although it seems not to have issued any formal regulations to that effect. The policy change has been seen by some as a warning to foreign banks which have not yet sold up.
Speaking at a meeting on March 31, China Banking Regulatory Commission (CBRC) chair Liu Mingkang said the move would help stabilise China's banking system. His remarks were widely reported in the media the next day. Despite the policy announcement, no formal regulations appear to have been issued.
“From what has been made public so far, there seems to be no published regulation – it is a statement by a senior CBRC official,” said Victor Ho, a Shanghai partner of Allen & Overy.
“Given the market, there seems to be no urgent need for a new regulation at this stage,” added Matthias Voss, another partner of the same firm.
Present regulations require foreign investors to keep their shares in Chinese commercial banks for three years. Bank of America, Royal Bank of Scotland and UBS recently sold their stakes in China Construction Bank and Bank of China in order to raise money. There had been speculation that Goldman Sachs would exit from its investment in ICBC this year, but the bank recently agreed to hold on until 2010. ICBC shares rose 15% after the decision.
At the time, one analyst commented to Bloomberg: “By committing to extend the lockup, Goldman showed RBS and Bank of America what being a real strategic investor means – helping the partner in the most difficult time … ICBC will surely remember that.”
Despite the lack of new written guidelines, the few banks that remain are therefore likely to see the CBRC statement as encouragement not to exit early.
“This seems more like a targeted message for potential new entrants and, probably more importantly, the remaining foreign banks that haven't sold down,” said Voss.
Investments into Chinese commercial banks were made strategically, on a pre-IPO basis. Foreign banks hoped to make further opportunities for
themselves as well as to improve the chances of the local bank during the listing process. As the markets rose, however, the investments turned out to be very valuable for the foreign investors, who may now be eager to lock in their profits.
“The regulators never thought of these as financial investments, so people didn't anticipate that they'd be selling down after three years,” Voss said.
“It was not expected on either side that the investments would have such a large upside – it was quite a windfall,” added Ho.
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