UPDATE 3-China approves Goldman investment bank venture
Thu Sep 9, 2004 12:15 AM ET
(Adds analyst comment, details, para 12-17; Goldman declines comment, para 4)
BEIJING, Sept 9 (Reuters) - Goldman Sachs Group Inc. (GS.N: Quote, Profile, Research) has won regulatory approval for an investment banking venture in China, enabling the Wall Street firm to arrange stock and bond deals in the potentially lucrative market.
Goldman, a top underwriter for Chinese companies listing shares overseas this year, got the approval just as China suspended all domestic IPO activity for one month to revamp a system that's been criticised for inflating corporate valuations.
The China Securities Regulatory Commission (CSRC) gave the green light to the venture, as well as to its main stakeholder, a new brokerage called Gao Hua, to be set up in part with investment from Chinese computer maker Lenovo Group Ltd. (0992.HK: Quote, Profile, Research) , the China Securities Journal said on Thursday.
A CSRC spokesman confirmed the approval but offered few other details. A spokesman for Goldman Sachs declined to comment.
Chinese banker Fang Fenglei would head Gao Hua, which would have registered capital of 1.1 billion yuan ($132.9 million), the newspaper said.
Sources say Goldman has spent more than a year in discussions with Fang, who used to run investment banks Bank of China (International) and China International Capital Corp.
CICC is a joint venture between state-run China Construction Bank and Morgan Stanley (MWD.N: Quote, Profile, Research) that allowed Goldman's Wall Street rival to tap the Chinese market in 1996.
Goldman would lend $97.75 million to Gao Hua to help it make the investment in the venture, the newspaper said.
The newspaper did not give a breakdown of the investment, but sources said last month that Goldman would hold a 33 percent stake, the maximum allowed by Chinese rules.
The other 67 percent would be held by Gao Hua, and Lenovo would hold a quarter of Gao Hua.
MARKET OPENING
Chinese regulators have allowed Sino-foreign partnerships in the brokerage sector through joint ventures as part of pledges Beijing made to join the World Trade Organisation.
"The market should be opened wider to foreign investors as they bring in an advanced management and investment concept as well as capital. But their influence is still limited," said He Qiang, economist at the Central University of Economics and Finance.
Chinese regulators aim to bring market forces to stock pricing by opening the process to bidding from institutions such as mutual funds, brokerages and foreign investors.
Stocks have fallen around 27 percent since early April and hit their lowest level in more than five years on Thursday, mainly battered by Beijing's economic cooling measures.
Chinese firms raised 42.77 billion yuan ($5.2 billion) through IPOs on mainland exchanges in the first seven months of this year, up 65.5 percent from the same period last year, according to CSRC.
The top three underwriters last year were CITIC Securities (600030.SS: Quote, Profile, Research) , Galaxy Securities and Guotai Junan Securities.
The government is expected to issue a record 702 billion yuan in treasury bonds this year, mainly to fill budget shortfalls.
CLSA, the Asian investment banking unit of France's Credit Agricole (CAGR.PA: Quote, Profile, Research) and French bank BNP Paribas (BNPP.PA: Quote, Profile, Research) , also have Chinese joint ventures with 33 percent ownership.
Goldman Sachs was among the first wave of foreign players to invest in China's main stock and bond markets under a landmark Qualified Foreign Institutional Investor (QFII) scheme. ($1=8.277 Yuan)