Citic and Bear re-negotiate agreement

by Dave Nixon

Story link: Citic and Bear re-negotiate agreement

Bear Stearns and Citic Securities, China’s principal securities firm, are renegotiating the share swap accord they reached last year to better mirror an ensuing fall in their stock prices.

Senior executives from both firms are discussing a “reciprocal adjustment” that would augment the total they ultimately hold in each other, according to someone familiar with the topic

Under the terms of the deal struck in October, Citic arranged to pay $1bn for securities that would exchange to about 6 per cent of Bear Stearns and the US investment bank would ultimately pay the equivalent amount for about 2 per cent of Citic.

The deal still requires regulatory approval in China, but if successful, Citic Securities, the brokerage arm of China Citic Group, which is controlled by China’s cabinet, would develop into the largest solitary shareholder of the US investment bank.

Such a large stake by a foreign investor in a US bank could draw disapproval in the US, where various lawmakers have been anxious by direct investments by sovereign wealth funds from Asia and the Middle East.

Senator Charles Schumer, chairman of the joint economic committee, this week gestured a potential push for better regulation of such investments.

Citic’s stake is expected to be increased to 9.9 per cent of Bear Stearns. The US investment bank’s stake in Citic could ultimately be increased to as much as 7.5 per cent, consistent with a report from China’s official Xinhua news agency.

The $1bn investment scale will continue , subject to approval from Chinese regulators.

Bear’s shares have dropped from around $120 when the deal was signed in October to about $80 now. Citic’s shares have dropped 40 per cent to about Rmb71.

Citic first approached the subject of renegotiating the stake it would take in Bear last November following a abrupt drop in the US bank’s shares, according to those familiar with the subject.

A Citic spokesman said he had no comprehension of any continuing negotiations and a Bear spokeswoman in Japan could not be contacted for comment.

For the two sides to take bigger shares in each other was “reasonable” and reflected their lower share prices, according to someone close to the negotiations.

Another source familiar with the subject was more unconvinced, saying that it is all the conjecture driven by our competition which is causing the regulators to grow to be concerned. The prices on both sides have come down but that doesn’t indicate that the deal will be renegotiated unless it is in the interest of shareholders on both sides.