Kill two Birds with Only One Stone

2007-8-13

“From the perspective of either the current price or the future benefits, our investment in CMBC is worthwhile.” quoted from Dr. Zhuang Hanping, General Manager Assistant of Ping An Asset Management Company. According to him, Ping An Insurance is a financial investor of CMBC, so its equity ratio won’t exceed 5% of the total shares. There are three reasons for Ping An’s investment in CMBC: firstly, the prospect of Chinese economy is bright, thereby investing in the bank sector is equivalent to investing in the prospect of Chinese economy; secondly, CMBC is one of the best among the joint-equity banks in China and is very efficient in capturing opportunities for economic development; thirdly, this is required by Ping An for diversified investment and strategic placement.

Zhang Ke, an independent director of CMBC and the No.1 partner of Xingyongzhonghe Accounting Firm, thought it is a good thing that its shareholder structure has changed after this private placement. In the beginning when CMBC was established, CMBC advocated for private capital, which brought vitality, also balanced the Board of Directors, which is conducive to both internal governance and the scientific decision-making process. However, private companies are often too concentrated on benefits, sometimes there may be intensified conflicts of interests. Meanwhile, the shareholders may be short of capital, and it will be difficult for them to increase investment. This time all of the three newly entered shareholders are financial enterprises. 
 
So on one hand, there will be a diversified shareholder structure, which allows more viewing angles and ideas in decision-making, forming a positive balancing force, which is conducive to further improve corporate governance. On the other hand, they are financial enterprises much like banks; they will be able to provide some valuable instructions and opinions on enterprise management.

So, will China Life and Ping An send their representatives to CMBC’s board of directors? According to an executive from CMBC, there are 18 members in CMBC’s board of directors at present. According to the Company Law, the number of directors in the Board shall not exceed the number of 19. So there is little possibility to add directors at present. What’s more, this fourth Board of Directors was formed last year and its tenure is 3 years. There is little chance of adjusting the members of Board of Directors before expiry. According to one senior executive of CMBC, a shareholder doesn’t have to be a director to play a role.
 

　　Route of Merging

While CMBC completing this private placement, there is word that CMBC will restart its H-share issuance. The CMBC executive expresses that the Board of Directors will consider issuance of H-share and other ways of refunding. According to him, CMBC regards the process of internationalization is a general trend which is demonstrated in two fields: one is the internationalization of business and organization including establishing overseas branches; the other is the internationalization of shareholders’ structure and funding platform, including issuance of H-share.

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