DBS Bank has agreed to acquire a 13% stake in Shenzhen Rural Commercial Bank (SZRCB) for 5.286 billion yuan (US$813.7 million). It says the deal has been approved by the Monetary Authority of Singapore and the China Banking and Insurance Regulatory Commission (Shenzhen Office).
The Singapore bank will acquire 1.35 billion new shares in SZRCB at 3.91 yuan per share, representing 1.01 times the book value per share of SZRCB as of December 31 2020. Upon the completion of the investment, DBS will become the largest shareholder in SZRCB and will have representation on SZRCB’s board of directors.
According to DBS, the investment will have less than 0.2 percentage point impact on the group’s capital ratios, and is seen to be immediately accretive to earnings and return on equity. DBS intends to fund the deal with internal cash resources. The investment is expected to be completed upon the approval of the China Securities Regulatory Commission.
DBS says the acquisition will allow the bank to increase its exposure to China, which it considers one of its six core markets.
In particular, the deal will accelerate DBS’ strategy to expand and grow in the Greater Bay Area via Shenzhen, arguably GBA's fastest growing city with the highest GDP.
It will also create mutually beneficial collaboration between SZRCB and DBS’ Hong Kong and China franchises, as well as the rest of DBS’ regional network; generate attractive financial returns immediately; and strategically position DBS well to increase its stake in SZRCB, given the liberalization of China’s financial services sector, according to DBS.
Established in 2005 and headquartered in Shenzhen, SZRCB is a privately-owned commercial bank. It has built a unique niche in serving local communities, which have grown in wealth amid the city’s rapid growth and urbanization.
SZRCB currently operates one of the largest bank branch network in Shenzhen, where 210 of its 217 branches and over 2,100 self-service terminals are located. It has over 3,600 employees servicing over five million active retail customers and over 170,000 active corporate customers.
Approximately 40% of its total loans are in the retail segment and the remaining 60% in the corporate segment, largely to local small and medium enterprises. Based on SZRCB’s financial results for the year ended December 31 2020, the Shenzhen bank had 519 billion yuan in assets and 404 billion yuan in deposits, and generated 4.8 billion yuan in net profit after tax. It has a strong track record of profitability, achieving average ROE of over 17% since its establishment in 2005.
Piyush Gupta, chief executive officer of DBS, says: “We are excited to be the largest shareholder of SZRCB and have the opportunity to build a unique value proposition with SZRCB in the GBA and beyond. We see this as a highly complementary strategic partnership that will allow us to double down on the GBA and leverage on SZRCB’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 SZRCB 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.”