Troubled Hengfeng Bank Co. Ltd. has received official approval for a restructuring plan that involves investments from a provincial government and a unit of China’s sovereign wealth fund, Caixin has learned.
Hengfeng Bank, one of China’s 12 national joint-stock lenders, will receive a 30 billion yuan ($4.3 billion) investment from an entity controlled by the Shandong provincial government, making the entity the biggest shareholder of the Shandong-based bank once the deal is done, multiple sources told Caixin.
Meanwhile, Central Huijin Investment Ltd., a domestic arm of China’s sovereign wealth fund, China Investment Corp., will also become a strategic investor. Central Huijin has yet to do its due diligence on the bank, a senior Hengfeng Bank executive told Caixin.
The upcoming investment in the lender by state-owned capital marks part of regulators’ efforts to guide high-risk financial institutions into mergers or restructuring to contain risks.
“Central Huijin is a market-oriented institution, so the size of its investment will depend on the result of due diligence, including the quality of the (bank’s) assets,” the Hengfeng Bank source said.
Central Huijin’s decision will ride on how much of the bank’s bad assets can be stripped off at the end of any deal, the source said.
Central Huijin is expected to hold less than 20% of Hengfeng Bank’s shares, Caixin has learned from multiple sources.
Hengfeng Bank is no stranger to scandal. Two of Hengfeng Bank’s former heads have come under investigation for alleged embezzlement. The bank also failed to disclose its financial reports for two consecutive years through 2018.
Hengfeng Bank had 1.2 trillion yuan in total assets at the end of 2016, according to its annual report that year, the most recent one it released.
The bank is the third commercial lender to receive state assistance since May, following the takeover of Inner Mongolia-based Baoshang Bank Co. Ltd. and the restructuring of Liaoning-based Bank of Jinzhou Co. Ltd.
Central Huijin, headquartered in Beijing, was established in December 2003 and mandated to act on behalf of the state as an investor in major state-owned financial enterprises, according to its website. At the end of last year, it held stakes in institutions including policy lender China Development Bank, the country’s four biggest commercial lenders — Industrial and Commercial Bank of China Ltd., Agricultural Bank of China Ltd., Bank of China Ltd. and China Construction Bank Corp. — as well as China Everbright Group Ltd. and China Everbright Bank Co. Ltd.
Contact reporter Timmy Shen (hongmingshen@caixin.com, Twitter: @timmyhmshen)
