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Moody's rating on Shenzhen bank up

Moody's Investors Service has raised its rating on Shenzhen Development Bank after Ping An Insurance (Group) Co's announcement that it would buy into the mid-sized bank.

The rating firm raised its outlook on the bank's financial strength rating to positive from stable on the deal.

Ping An, China's second biggest insurer, said it will increase its holding in the Shenzhen bank to as much as 30 percent by the end of 2010.

"The change in the bank's outlook reflects the potential increase in its capital base through the issue of new shares as a result of the Ping An investment," said Leo Wah, a Moody's senior analyst. "The benefit of having Ping An as its largest shareholder would also strengthen its franchise."

Shenzhen-based Ping An will increase its stake in the bank via two transactions.

It will acquire 520 million shares of the bank from Newbridge, a unit of United States' TPG Capital, for 11.5 billion yuan (US$1.7 billion) by the end of 2010 for cash or through a share swap for its own shares.

Ping An will also purchase up to 585 million new shares from Shenzhen Development Bank for 10.7 billion yuan.

"Ping An would offer the Shenzhen bank the backing of a solid financial institution with strong long-term commitment," said Wah.

"Cross-selling opportunities within the group could boost the bank's bottom line," he said.

The increase in capital would also provide a cushion against an expected deterioration in asset quality amid the more difficult economic conditions, he said.

Analysts from Guosen Securities Co said the new share sales of Shenzhen Development Bank would likely be completed this year while the Newbridge deal is expected to be completed in 2010.

"In the long run, it's a good deal to shore up the bank's capital for further expansion," said Qiu Zhicheng, a Guosen Securities analyst. "In the short term, it's hard to tell their integration as both players have strong corporate culture."

"Ping An Bank and Shenzhen Development Bank may combine in the long run. But it is unlikely to see the merger within years," Guosen said.

Ping An inched up 0.36 percent to 44.01 percent in Shanghai. Shenzhen Development Bank dropped 1.73 percent in Shenzhen trading.


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