Snapshot for week beginning 18 April. Singapore’s financial powerhouse DBS Bank is set to become the largest shareholder of Shenzhen Rural Commercial Bank in its continuing effort to maintain its leadership position in its core market.

It’s a lesson we learn over and over again. Those that invest in, protect and strengthen their base, core business and functions thrive over time. Those that get distracted wither.

One of the tools companies use to strengthen their position in their core market is merger and acquisition.

Companies acquire other companies for various reasons. They may seek economies of scale, diversification, greater market share, increased synergy, cost reductions, or new niche offerings.

A company seeking to grow in its core market might look for promising young companies to acquire and incorporate into its revenue stream as a new way to profit.

This week’s feature deal provides a good example. DBS Bank is a Singaporean multinational banking and financial services corporation headquartered in Marina Bay, Singapore.

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The company is seeking to maintain its market-dominant positions in consumer banking, treasury and markets, asset management, securities brokerage, equity, and debt fund-raising in Singapore, Hong Kong and Taiwan.

It sees Shenzhen Rural Commercial Bank (SZRCB) as a valuable addition.

The Chinese bank offers loans, deposits, government bonds underwriting, currency exchange, international settlement, investment, insurance agency, and other banking services.

SZRCB provides services for enterprises and individuals.

DBS’ investment in SZRCB is in line with the Singaporean bank’s strategy of investing in its core markets and accelerates its expansion in the rapidly growing Greater Bay Area.

Deal of the week: DBS to acquire a 13% stake in Shenzhen Rural Commercial Bank

DBS Bank has entered into an agreement and obtained approvals from Monetary Authority of Singapore and China Banking and Insurance Regulatory Commission to subscribe for a 13% stake in Shenzhen Rural Commercial Bank Corporation.

DBS will acquire 1.35 billion new shares in SZRCB at RMB 3.91 per share, representing 1.01 times the book value per share of SZRCB as of 31 December 2020.

Upon the completion of the Investment, DBS will become the largest shareholder in SZRCB and will have representation on SZRCB’s board of directors.

The Investment will have less than 0.2 percentage points impact to the Group’s capital ratios, and is expected to be immediately accretive to earnings and Return on Equity.

DBS intends to fund the Investment using internal cash resources and it is expected to complete the Investment upon receipt of China Securities Regulatory Commission approval.

About Shenzhen Rural Commercial Bank

Established in 2005 and headquartered in Shenzhen, SZRCB is a privately-owned commercial bank that is professionally managed.

Leveraging on its roots, SZRCB has built a unique niche in serving local communities which have grown in wealth given Shenzhen’s rapid growth and urbanisation.

SZRCB currently operates one of the largest bank branch network in Shenzhen, where 210 of its 217 branches and over 2,100 self-service terminals are located.

SZRCB currently has over 3,600 employees servicing over 5 million active retail customers and over 170,000 active corporate customers.

Approximately 40% of its total loans are in the retail segment and remaining 60% in corporate segment, largely to Shenzhen-based small-and-medium-enterprises.

Based on SZRCB’s financial results for the year ended 31 December 2020, SZRCB has RMB 519 billion (SGD 106 billion) of total assets and RMB 404 billion (SGD 82 billion) of deposits, and generated RMB 4.8 billion (SGD 976 million) of net profit after tax. It has a strong track record of profitability, achieving average ROE of over 17% since its establishment in 2005.

Strategic Rationale

The Investment will allow DBS to increase its exposure to China, one of DBS’ six core markets, and has the following strategic merits:

  • Accelerate DBS’ strategy to expand and grow in GBA via Shenzhen, arguably GBA’s fastest growing city with the highest GDP.
  • Create mutually beneficial collaboration between SZRCB and DBS’ Hong Kong and China franchises, as well as the rest of DBS’ regional network.
  • Generate attractive financial returns immediately.
  • Strategically position DBS well to increase its stake in SZRCB given liberalisation of the financial services sector in China.