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Social security fund to invest in CDB

By Mao Lijun (China Daily)
Updated: 2008-07-01 10:00

The National Council for Social Security Fund will become the exclusive strategic investor for China Development Bank (CDB), which is being restructured into a commercial bank, a source said yesterday.

The source, who did not want to be named, said the lender, which is expected to set up a new firm by June, has postponed it to July and has chosen the social security fund to be the only strategic investor. But he didn't reveal how much the fund will inject into the country's largest policy lender.

CDB has secured formal approval from the State Council to establish a new commercial firm and started inviting strategic investors to join the firm last month.

Earlier reports said not only domestic financial institutions but overseas equity investors were also being targeted as strategic investors. The source denied such reports, saying the lender may consider inviting overseas investors next year.

Analysts say the social security fund has gradually become the largest source of capital for equity investment in the country. The fund is expanding into alternative investments as it seeks to gain higher returns, they say.

"We must explore more investment channels to boost returns," Dai Xianglong, chairman of the social security fund, told media.

Analysts expect a full return of the security fund's investment after the lender goes into commercial operation, with the Ministry of Finance and Central Huijin Investment Co Ltd acting as the two biggest shareholders and supporters of the State-owned lender.

Central Huijin, a subsidiary of China Investment Corp, injected $20 billion into the lender last year and greatly helped the bank increase its capital ratio, a measure to determine banks' financial strength and a requirement for commercial operation.

The cash injection has helped the bank increase its net assets from 158 billion yuan to more than 300 billion yuan.

As the first of the country's three policy banks to undergo commercialization reforms, the lender has made big efforts to diversify its business.

Besides the Barclays deal, CDB has made other moves to expand into new areas of business, including expanding into financial leasing by acquiring Shenzhen Financial Leasing Co Ltd for 7 billion yuan, independently sponsoring the Africa Development Fund with 5 billion yuan and co-sponsoring Bohai Equity Fund, a domestic industrial fund with 1 billion yuan.

Established in 2000 with about 20 billion yuan, the social security fund's market value of assets under management had risen to 516.2 billion yuan last year.

The fund has invested 2 billion yuan each in funds managed by private equity firms CDH Investments and Hony Capital.

Analysts said the fund has already become the largest player in the country's private equity fund market.