DBS Bank announced on April 20, that it has entered into an agreement with Shenzhen Rural Commercial Bank where it will subscribe to a 13% stake for a consideration of RMB5.29 billion ($1.08 billion).
The bank has already obtained approvals from the Monetary Authority of Singapore (MAS) and China Banking and Insurance Regulatory Commission, Shenzhen Office (Shenzhen CBRIC).
The investment, according to DBS, is in line with DBS Group Holdings’ strategy of investing in its core markets and accelerates its expansion in the fast-growing Greater Bay Area via Shenzhen.
Shenzhen is the area’s fastest-growing city with the highest GDP.
It will allow DBS to increase its exposure to China, one of its six core markets.
The move will also strategically position DBS well to increase its stake in Shenzhen Rural Commercial Bank given the liberalization of the financial services sector in China.
Following the acquisition, DBS will acquire 1.35 billion new shares in Shenzhen Rural Commercial Bank at RMB3.91 per share. The price represents 1.01 times the book value per share of Shenzhen Rural Commercial Bank as at Dec 31, 2020.
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Upon the completion of the investment, DBS will become the bank’s largest shareholder and will be represented on Shenzhen Rural Commercial Bank’s board of directors.
The investment will have less than 0.2 percentage points impact to the DBS Group’s capital ratios and is expected to be immediately accretive to earnings and return on equity (ROE).
DBS says the investment will be funded through internal cash resources. It is expected to complete the investment upon the approval of the China Securities Regulatory Commission.
Shenzhen Rural Commercial Bank is a privately-owned commercial bank that is professionally managed. It was established in 2005 and is headquartered in Shenzhen and has a unique niche in serving local communities that have grown in wealth.
“We are excited to be the largest shareholder of Shenzhen Rural Commercial Bank and have the opportunity to build a unique value proposition with Shenzhen Rural Commercial Bank in the Greater Bay Area and beyond,” says DBS CEO Piyush Gupta.
“We see this as a highly complementary strategic partnership that will allow us to double down on the GBA and leverage on Shenzhen Rural Commercial Bank’s local network and know-how to deepen DBS’ GBA strategy. At the same time, we would be able to support the continued growth and digital transformation of Shenzhen Rural Commercial Bank through our regional presence and digital capabilities. Our ability to execute another strategic transaction shortly after amalgamating Lakshmi Vilas Bank in India, is testament to our ability to be nimble and grow, as we leverage on our strong capital position,” he adds.
Shares in DBS closed flat at $29.02 on April 20.