Shenzhen Development Bank has terminated the private share placement agreement with Baosteel Group, according to the bank's announcement dated September 25.
The fact that Shenzhen Development Bank's A-share price has slid 56.4 percent compared to the agreed share placement price was the key reason for the termination, said many analysts.
Shenzhen Development Bank in December 2007 announced it agreed to place 120 million shares to Baosteel Group at a price of CNY 35.15 per share, 90 percent of its daily average price in 20 trading days prior to the announcement. The share placement, which will cost Baosteel a total of CNY 4.218 billion, would enable the steelmaker to become the lender's second largest shareholder.
The share placement was considered a prelude to foreign shareholder Newbridge Capital's withdrawal from Shenzhen Development Bank.
Shanghai-based Baosteel Group, the country's largest steelmaker, on October 22, 2007 bought in 4,718 shares of Shenzhen Development Bank and 250,000 shares on November 5 at CNY 43.97 on average.
In addition, Baosteel Group's wholly owned investment vehicle held 2.86 million shares of the lender and 11.04 million warrants of Shenzhen Development Bank. Fortune Trust Co., where Baosteel Group owns 98 percent stake, holds 2.18 million shares of Shenzhen Development and 611,600 warrants.
Given all of the mentioned warrants are exercised and Shenzhen Development Bank launches the share placement, Baosteel Group would hold 137 million shares in the bank.
But the lender's A-share price has slid to around CNY 15 amid the wild correction of stock market since the start of 2008.
Upon the termination of share placement, Shenzhen Development Bank decided to issue CNY 28 billion worth of bonds, including CNY 10 billion subordinated bonds, CNY 10 billion financial bonds and CNY 8 billion mixed-type bonds to replenish its capital base.
Analysts took clue from the lender's announcement that failure to get approval from the State-owned Assets Supervision and Administration Commission of China (SASAC China) is another major reason for the termination of share placement.
SASAC China gave a signal that it does not expect state- owned enterprises under its direct administration to invest in non-core business. It is anticipated that examination about such investment would get much stricter in the future.
SASAC China earlier refused China National Petroleum Corporation's proposed acquisition of Zhuhai City Commercial Bank for CNY 2 billion.
(USD 1 = CNY 6.84)