China’s Latest Regional Bank Rescue May Cost $14 Billion

Alfred Liu

19 Dec 2019, 02:02 PM IST

(Bloomberg) -- Struggling Chinese regional lender Hengfeng Bank Co. may just have received a $14 billion rescue package.

The Shandong-based lender sold 60 billion new shares to Central Huijin Investment Ltd., a unit of China’s sovereign wealth fund, 36 billion shares to Shandong Financial Asset Management Co. and 4 billion shares to United Overseas Bank Ltd. and other investors, it said in a statement.

While the price of the shares wasn’t disclosed, Singapore’s UOB said it paid S$360 million ($266 million) in buying 1.86 billion shares in the deal, putting the rescue package at $14 billion if the others paid the same price. It was reported in August that Huijin and Shandong would be stepping in with support.

The rescue underscores efforts by Chinese policy makers to restore confidence in its vast network of rural and regional lenders amid the slowest economic expansion in nearly three decades. As bad debt has piled up, China shocked markets in May with a government takeover of Baoshang Bank Co. -- the first bank seizure in more than 20 years.

Policy makers have since moved to a more calibrated approach, engineering rescues through state-owned and regional financial heavyweights. They are also looking at a broad plan to urge some its 3,000-plus local banks to merge and have local authorities take more responsibility, with takeovers and bankruptcy only seen as the very last options.

“Solving this problem is part of the process for the Chinese government to ‘de-mine” its banking sector, said Zhang Shuaishuai, a Shanghai-based analyst at China International Capital Corp. “The government has stepped in and introduced investors like Huijin, local government entities and private entities to handle their problems, demonstrating its ability to mitigate the risk.”

China’s banking regulator said in June that the Shandong government was speeding up the restructuring of Hengfeng, a mid-sized bank that has failed to disclose its financial statements for two straight years. The lender had 1.2 trillion yuan ($170 billion) of assets at the end of 2016, according to its most recent annual report.