IBM to join Citigroup bid for Chinese bank stake

HONG KONG, Nov 13 (Reuters) International Business Machines will join a consortium led by Citigroup that is bidding $3 billion for control of China's Guangdong Development Bank, sources familiar with the matter said on Monday.

IBM Global Financing, a unit of the world's largest technology services company, will take a stake of up to 5 percent in the troubled southern Chinese lender if the Citigroup bid was successful, the sources said.

Citigroup and France's Societe Generale have been locked in a takeover battle for more than a year, with the sources saying both sides are bidding about $3 billion for 85 percent of GDB.

China, which is set to open its banking sector fully to foreign competition under WTO obligations next month, has attracted nearly $21 billion in financial services industry investments since 2001, according to Boston Consulting Group.

IBM would join a consortium that the sources said included top life insurer China Life Insurance Co.

''It is IBM's practice not to comment on rumours or speculation,'' an IBM spokesman said in an email, while officials at Citigroup and GDB declined to comment.

Citigroup and its wholly-owned Associates First Capital arm would take a combined stake slightly larger than that of China Life to become GDB's largest individual shareholder, one banker involved with the bid said.

If successful, Citigroup and Associates First would take a combined stake between 20 and 21 percent -- above the 20 percent limit imposed on individual foreign stakes in Chinese banks -- in an arrangement that has won Beijing's blessing, the banker said.

A final agreement between the consortium members is expected to be signed this week, the banker said.

Citigroup, Associates First and IBM are seeking a combined holding below the 25 percent limit on total foreign ownership in a Chinese bank. Associates First would take a stake of 1 percent or less, the source said.

TOP EXECUTIVES IN TOWN Top Citigroup executives including Chief Executive Charles Prince and former U.S. Treasury Secretary Robert Rubin, now a member of Citigroup's office of the chairman, are in Hong Kong this week for meetings, the sources said.

IBM Chief Executive Sam Palmisano is also scheduled to be in China this week.

GDB is a top client for IBM, which supplies more than 80 percent of the bank's IT systems and devices, a technology industry source said on Monday.

Citigroup last year won preliminary approval to take a stake larger than 20 percent in GDB, but that arrangement was later knocked down by regulators, re-opening the bidding with SocGen.

''Everyone would have liked to go down the route Citigroup was planning if they could. Any foreign bank going into China would like to have management control,'' said Peter Tebbutt, a senior director in the Asia Pacific financial institutions group of Fitch Ratings.

''Chinese banks generally need a lot of work in systems and commercial orientation and culture, and you need to have control to make those changes,'' he said.

Citigroup and SocGen are attracted to GDB's more than 500 branches, rather than the lender's weak financial shape.

Citigroup is also in talks to increase its stake in Shanghai Pudong Development Bank to 20 percent from less than 5 percent, and stakes in both banks would give the firm a footprint in two of China's richest markets.

REUTERS PKS VV2109