SHANGHAI/BEIJING, Oct 18 (Reuters) - HSBC Holdings Plc wants to increase its stake in China's Bank of Communications over the next 12 months, BoCom Chairman Jiang Chaoliang said on Thursday.
Jiang added that HSBC, which now holds an 18.6 percent stake in his bank -- China's fifth-largest in terms of assets -- would not be deterred by BoCom's rising share price.
''HSBC has the right to increase its stake and I believe it will definitely increase its stake,'' Jiang told a group of reporters during the Communist Party Congress in Beijing.
''I think you won't be asking me this question by this time next year,'' he said when asked about the timing of an increase.
In 2005, HSBC bought a 19.9 percent stake in BoCom for $1.75 billion, which was diluted to 18.6 percent early this year when the Chinese bank floated shares in the Shanghai market. It was already listed in Hong Kong.
''No matter from technical, supervision or legal perspectives, I don't see any obstacle for HSBC to increase its stake in BoCom currently,'' he said.
Following Jiang's comments, HSBC said in an e-mailed statement to Reuters: ''HSBC continues its discussions with BoCom regarding restoring its shareholding to 19.90 percent.'' ''We have no further details to announce for the time being,'' it added.
Based on the HK$11.72 closing price of BoCom's Hong Kong-listed shares on Thursday, HSBC would need to pay about HK$7.46 billion ($962 million) for the 636.9 million shares needed to restore its stake to 19.9 percent.
20 PERCENT OR 40 PERCENT? When HSBC bought 19.9 percent of BoCom in 2005, the Shanghai-based bank agreed that HSBC would have the option to raise its stake to 40 percent between 2008 and 2012, subject to the Chinese government's approval.
Currently, a single foreign investor can only own up to 20 percent of a Chinese bank, while overseas investors combined can hold no more than 25 percent of a domestic lender.
Foreign banks have been lobbying Beijing to increase the investment cap or scrap it altogether.
Citigroup Inc sought special permission from the Chinese government to purchase about 50 percent of Guangdong Development Bank in southern China last year, but it was eventually allowed only a 20 percent stake.
''It's unlikely that Beijing will lift or increase the investment cap for all foreign banks in China in the short term, but it's still hopeful for an individual foreign bank to seek special permission,'' said a foreign banker in China.
Jiang did not elaborate on Thursday whether HSBC would increase its stake to 19.9 percent or 40 percent in the next 12 months, but he said the share price would not be a concern.
''Price should not have a big impact (on the deal) ... even if our H-share price reaches HK$30 to 40 apiece,'' he said.
A source close to BoCom told Reuters that the Chinese bank had set up a special team to work out a plan to allow HSBC to increase its stake eventually to 40 percent.
Jiang said BoCom was interested in expanding outside of China, with an overseas focus on the United States, Europe and the Asia-Pacific region, but he also mentioned India, South Africa and Brazil as possible destinations.
On Wednesday, media reports quoted Jiang as saying he expected the bank to post a 63.1 percent rise in profit this year, topping 20 billion yuan ($2.66 billion), but the bank later issued a statement saying the figure was only a target.
In response to Jiang's comments on its 2007 earnings, Goldman Sachs reiterated a ''buy'' rating on BoCom in a report to clients dated Oct. 18.
(Additional reporting by Rita Chang in Hong Kong) REUTERS SI KP1549