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Report: Huishang Bank to invest in troubled Baoshang Bank as part of rescue deal

Baoshang Bank Co. Ltd. is expected to receive 3.6 billion yuan of fresh capital from Huishang Bank Corp. Ltd. as part of a state-backed attempt to save the troubled bank from becoming insolvent, the South China Morning Post reported, citing banking sources.

The report came after Huishang Bank said Jan. 7 that it would contribute up to 3.6 billion yuan of one-off capital to a new provincial local commercial bank and acquire up to a 15% stake in the bank. The Hong Kong-listed bank also said in its disclosure that it was looking to acquire part of assets and liabilities of other banking financial institutions. It did not disclose details like name of the provincial local commercial bank and its other shareholders.

Banking sources told the newspaper that the commercial bank referred to in Huishang Bank's disclosure is Baoshang Bank.

Huishang Bank will take a stake of no more than 15% in Baoshang Bank and take over four branches of the bank, the sources said.

Chinese regulators took over Baoshang Bank in May 2019 in view of credit risks faced by the lender, making it the first bank to be seized by regulators since 1998. The Baoshang Bank seizure was followed by state-backed bailouts of Bank of Jinzhou Co. Ltd., Hengfeng Bank Ltd. and Harbin Bank Co. Ltd. later in 2019, respectively.

Baoshang Bank, Hengfeng Bank and Jinzhou Bank were once controlled by Tomorrow Group founder Xiao Jianhua who is awaiting trial on charges of bribery and manipulating stock prices, the newspaper reported, citing sources. He has reportedly been helping authorities with their inquiries as part of a crackdown into deal making.

Neither bank could be reached for comment by the South China Morning Post.

As of Jan. 8, US$1 was equivalent to 6.95 Chinese yuan.