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UOB to buy more shares in troubled Chinese lender Hengfeng Bank

UNITED Overseas Bank (UOB) announced on Wednesday that it is buying more shares in troubled Chinese mid-sized lender Hengfeng Bank Co, with a subscription of 1.86 billion shares for a sum of 1.86 billion yuan (S$360.4 million).

The subscription is part of a capital-increase exercise undertaken by Shandong-based Hengfeng Bank through private placement to raise 100 billion yuan.

The majority of the shares, or 96 billion, will be subscribed by Chinese state-owned investment company Central Huijin Investment Limited and Shandong Financial Asset Management Co, to become controlling shareholders of the bank, as part of state rescue efforts to prop up its floundering, smaller lenders as the Chinese economy slows.

This follows the takeover of Baoshang Bank Co in May, and state-owned financial companies buying up stakes in Bank of Jinzhou shortly after that.

Hengfeng Bank has not disclosed its financial statements in the past two years. It had 1.2 trillion yuan of assets at the end of 2016, according to its most recent annual report.

In May, it was reported that UOB had wanted to sell its 13 per cent stake in Hengfeng Bank, which it purchased back in 2008. The intention back then was to grow its presence there with more of its own branches.

Following the transaction, which is subject to regulatory approvals, UOB will hold a total of 3.34 billion shares in Hengfeng Bank. UOB intends to fund the subscription of additional shares in cash using its internal resources. It is not expected to have a material impact on earnings or net tangible assets of UOB Group for the current financial year.

According to a filing on the Singapore Exchange, the increased shares are in line with UOB's "focus on driving regional connectivity and building ecosystem partnerships to facilitate business and investment opportunities opening up across the region".

It added that the collaboration with Hengfeng Bank will help businesses benefit from Shandong's economic progress and financial liberalisation, and is in tandem with the partnership between Singapore and Shandong to promote business flows into South-east Asia with Singapore as a regional hub.

UOB shares rose 34 Singapore cents or 1.3 per cent to S$26.58 on Wednesday before the announcement.