Guodian Power Development Co (GPDC), a publicly listed company, said it will buy a 20 percent stake in Shijiazhuang City Commercial Bank.
GPDC, a subsidiary of China Guodian Corporation (CGC), one of the country's top three power generating firms, will acquire the bank's 313 million shares for 1.2 yuan apiece.
GPDC will become the bank's largest shareholder with the 375 million yuan capital investment, it said yesterday.
The cash injection from the issue of new shares will lift the bank's capital adequacy ratio to above 10 percent, paving the way for the bank to hold an initial public offering (IPO) on the mainland A-share market in the future.
Commercial banks are required to have at least 8 percent capital adequacy ratio before they can apply for mainland listing.
GPDC has already signed an agreement with the bank for the purchase, but "the plan will be subject to the approval of the regulators", it said.
"It would be a good idea for GPDC to have a stake in the local commercial bank because the financing channel of the power generating company will be further broadened," said Chen Yicong, a power industry analyst with Southwest Securities Co.
As an investment arm for CGC in the mainland market, GPDC has stakes in 22 power generating companies. GPDC is 49.16 percent owned by its parent company, CGC, and recorded a net profit of 1 billion yuan last year, according to its website.
"GPDC is apparently anticipating a high return from the investment in Shijiazhuang City Commercial Bank," Chen said.
The bank's profit reached 42.6 million yuan at the end of 2006, "and buying shares from the bank at its pre-IPO stage provides a safer and cheaper investment for GPDC than investing in China's volatile stock market", Chen said.
High investment returns from purchasing stakes in commercial banks has prompted energy companies to embark on a buying spree.
Yangtze Power Corp purchased 400 million China Construction Bank shares last year and gained 1.18 billion yuan in investment income, some 36 percent of Yangtze's mid-term total profit, by selling the shares in the first half of this year.
China National Petroleum Corporation also inked a deal with Zhuhai City Commercial Bank last week to buy more than 86 percent stake of the bank for 2 billion yuan.