By Jamil Anderlini in Beijing

China Everbright Bank on Thursday said it would receive a Rmb20bn ($2.6bn) cash injection from the government as the final round of bail-outs for the country’s banking system begins, almost a decade after the sector was crippled by widespread defaults on state-directed loans.

Everbright will follow the restructuring model of larger competitors such as Bank of China and Industrial and Commercial Bank of China by introducing at least one foreign strategic investor and selling shares to the public, most likely in Shanghai and Hong Kong.

Standard Chartered is widely believed to be considering a stake in Everbright prior to the Chinese bank’s initial public offering, which is expected in the first half of next year. The Asian Development Bank already owns 2 per cent.

Dominic Chan, director of financial institutions research at CLSA, the Hong Kong-based investment bank, said: “Effectively Everbright is insolvent but a Rmb20bn injection from the government along with Rmb5bn from Standard Chartered or another investor and Rmb2bn from China Everbright Limited [the Hong Kong-listed subsidiary of China Everbright Group – the bank’s state-owned parent] would be enough to bring it up to the government’s capital adequacy requirements.”

Also in line for government bail-outs are Agricultural Bank of China, which could receive up to $40bn, and China Development Bank, which has just paid $3bn for a 3 per cent stake in Barclays Bank and will receive at least $20bn, according to state media reports.

Neither ABC nor CDB is expected to introduce foreign strategic investors.

The bail-outs are being made through Central Huijin Investment Corp, a holding company under the central bank, which itself will soon be subsumed into the nascent China Investment Corporation, the country’s new sovereign wealth fund.

In 2003, Huijin became the majority shareholder of BOC and China Construction Bank when it bailed the two banks out with $45bn, and it holds a joint majority share with the Ministry of Finance in ICBC, following a recapitalisation of $15bn in 2005.

These and its various stakes in smaller financial institutions will be transferred to the new CIC at book value, according to people familiar with the government’s plan.

Stagnant growth in the late 1990s compounded years of government-directed lending to inefficient state-owned enterprises and pet projects, leading to a banking crisis that is still being cleaned up.

Copyright Fund China 2009.

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