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Citigroup is likely to beat its French rival Societe Generale to buy a 19.9 percent stake in the Guangdong Development Bank (GDB), a source close to the Guangdong provincial government said yesterday.

Despite claims by the banking regulator last week that the deal is yet to be decided, a source close to the Guangdong administration said the provincial government and the debt-troubled GDB had chosen Citigroup as its major foreign strategic investor.

According to the source, the provincial government reported the choice of the US banking giant to the China Banking Regulatory Commission (CBRC) in mid-October and the two reached a preliminary agreement on the decision.

"The choice of Citigroup is in accordance with the GDB's current situation and future development," he said.

Citigroup yesterday declined to comment on the matter.

The US bank is expected to take as much as a 19.9 percent stake in the Guangzhou-based bank, in line with the current rule that a single foreign bank cannot hold a stake of more than 20 percent stake in a Chinese bank.

But winning the GDB stake might mean a difficult choice for Citigroup between two Chinese commercial banks. Citigroup currently owns a 4.2 percent stake in Shanghai-based Pudong Development Bank. The two signed an agreement earlier this year to allow Citigroup to raise its holding to 19.9 percent through a private placement by the Shanghai bank in 2007 based on the market price.

But industry insiders said China's banking regulator is not likely to allow one foreign bank to invest in two similar banks, despite Pudong Development Bank and Citigroup scrapping an former exclusivity contract forbidding the US bank from seeking stakes in other Chinese lenders.

"This might be a potential problem for the ambitious US bank as the final bid result is not yet decided," the source said, adding that the Chinese regulator wanted to ensure foreign banks' investments in China are in line with current rules.

Last Thursday Liu Mingkang, chairman of the CBRC, denied a report by the Xinhua News Agency that Citigroup had won a bidding war with French bank Societe Generale and China's second-largest insurer Ping An Group. "It's false. It's misleading," Liu said of the report.

The decision to choose Citigroup, which has assets of US$1.5 trillion and had revenue of US$83.6 billion by 2005, would end a year-and-a-half-long battle for control of the GDB.

The US and French-led consortiums, along with their mainland partners, had wanted to purchase at least 80 percent of the debt-laden Chinese bank.

The Citigroup consortium, which includes the China Life Group, the nation's largest insurer, and the State Grid Corp, the major electricity distributor, offered around US$3 billion for an 85 percent stake in the GDB.

(China Daily November 8, 2006)