Commonwealth Bank of Australia (CBA) today announced it has entered into a binding sale agreement to sell a shareholding of 10per cent1 in Bank of Hangzhou Co., Ltd. (HZB) to Hangzhou Urban Construction & Investment Group Co., Ltd and Hangzhou Communications Investment Group Co., Ltd, which are entities majority-owned by the Hangzhou Municipal Government (the Transaction). Total gross proceeds expected to be received by CBA following completion of the Transaction are approximately $1.8 billion.
CBA has agreed with HZB to retain its remaining shareholding in HZB of approximately 5.57%1 until at least 28 February 2025 (subject to certain exceptions, including if the Transaction is terminated prior to completion).
CBA Chief Executive Officer, Matt Comyn, said: “CBA is pleased to have played a meaningful role in HZB’s development since our original investment in 2005. Our collaboration has seen HZB become a significant player in retail, wealth management and commercial banking across the Yangtze Delta region. The reallocation of part of our shareholding to local partners will support the further expansion of HZB.”
“At the same time, the partial sale of our shareholding is consistent with our strategy to focus on our core banking business in Australia and New Zealand. Our ongoing shareholding in HZB following completion of the Transaction will enable us to continue to support its development as one of China’s leading city commercial banks, and complement our relationships in the region.”
HZB Chairman, Chen Zhenshan, said: “The over ten years of strategic cooperation between HZB and CBA have witnessed HZB’s rapid development and growing market influence. CBA has also achieved a good return on investment, which is a win-win outcome for both parties. HZB understands and respects the decision of CBA to reduce its shareholding based on its own strategic considerations and capital allocation needs. In the future, the two parties will continue to cooperate and maintain a strong partnership.”
CBA Financial Impacts
Upon completion, the Transaction is expected to deliver a pro forma uplift to the Group’s CET1 ratio of approximately 35 basis points on an Australian Prudential Regulation Authority (APRA) basis, based on the Group’s risk weighted assets as at 31 December 2021.
The completion of the Transaction is estimated to result in a post-tax gain on sale of approximately $340 million. The residual 5.57%1 shareholding will now be treated as a strategic equity investment, with gains and losses recognised within the Statement of Comprehensive Income. As a result, the Group will no longer recognise its share of HZB profits within other banking income, which over the past three financial years has averaged approximately $200 million revenue per annum.
Timing and Conditions
Completion of the Transaction is subject to a number of customary conditions including regulatory approval from the China Banking and Insurance Regulatory Commission, receipt of a confirmation opinion from the Shanghai Stock Exchange and registration of the share transfer by China Securities Depository and Clearing Corporation Limited. The completion of the Transaction is currently expected to occur around the middle of calendar year 2022.
Established in September 1996 and located in the city of Hangzhou in Zhejiang province, HZB is listed on the Shanghai Stock Exchange.
 Assuming no dilution as a result of the conversion of HZB convertible bonds currently on issue.