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Both Barclays and China Development Bank (CDB) stand to gain enormously
from the strategic partnership they inked yesterday.

Under the deal, China Development Bank, one of the country’s policy
banks, will initially invest 2.2 billion euros in Barclays by acquiring
201 million new Barclays shares, or 3.1 percent of Barclays shares, at
7.2 pounds apiece on August 14.

And, if the Barclays bid for ABN Amro goes through, the Chinese bank
will invest a further 7.6 billion euros in Barclays at 7.4 pounds per new
share to fund the 24.8 billion euro cash component of Barclays’
revised offer to the Dutch bank.

Barclays, the England-based financial institution, is now in a battle
with a European banking consortium led by Royal Bank of Scotland to
acquire ABN Amro.

Although ABN executives have shown their preference for Barclays, which
plans to merge ABN’s business to build a leading global bank, the
consortium’s offer, higher and almost entirely in cash, seems more
attractive to some ABN shareholders compared with Barclays’ original all-share
offer.

The investment from CDB, as well as Singapore’s Temasek Holdings, will
add muscle to Barclays’ bid.

ABN said yesterday that it welcomed the strategic investment in
Barclays from China and Singapore, although it would examine both offers in a
fair and transparent manner.

“The proposed strategic cooperation with CDB further enhances the
growth opportunities of the combined group in the attractive Asia market and
can result in the creation of additional long-term value for ABN
shareholders,” the bank said.

Barclays Chief Executive John Varley said the prospect of CDB becoming
a major investor in Barclays does not bother him.

According to the agreement, CDB may have up to 8 percent stake in
Barclays in the future and is free to buy additional shares in the open
market, with a limit of shareholding under 10 percent.
“I am comfortable It’s by far the biggest external investment ever made
by China, and it’s very good for Barclays,” Varley said, adding the
deal would give the bank unprecedented access to the Chinese market.

For the Chinese bank, partnering with Barclays is not a pure equity
investment, it will also benefit in terms of expertise, service abilities
and access to Barclays’ global franchise.

Under the partnership, Barclays will assist and advise CDB in its
evolution into a commercially operated financial institution.

It will provide expertise and advice in fields including risk
management, corporate governance and IT strategy and procurement.

“This strategic and financial collaboration is the next step in the
evolution of CDB into a commercially operated financial institution,” said
Chen Yuan, the Chinese bank’s governor, adding the investment in
Barclays represents a unique and compelling financial opportunity.

CDB is the first of the three policy banks which the Chinese government
has planned to transform into commercially operated financial
institutions.

Expert Views

“CDB’s investment in Barclays reflects the central government’s efforts
in encouraging Chinese financial institutions to tap the international
market with their foreign reserves and release pressure on the yuan.”

May Yan

Analyst, Moody’s Asia

“The move reflects the Chinese government’s efforts to encourage
capital outflow to reduce its overall balance of payments surplus. The deal
may also indicate that there could be other similar deals in the
pipeline in banking and other sectors.”

Sun Mingchun

Economist, Lehman Brothers Asia

“It is an inevitable trend that Chinese financial institutions will tap
into the global market, and equity investment is a natural choice for
their expanding business needs. Through cooperation with leading
foreign players, domestic banks will gain experience and deeper understanding
of the global market.”

Zhao Xijun

Professor, Renmin University of China

“The deal made CDB the first mainland lender to make a strategic
investment in an international financial firm. Barclays has a long-standing
relationship with CDB. The two banks are very complementary.”

John Studzinski

Senior managing director, Blackstone

By Zhang Lu