HSBC and the Bank of Communications (BoCom) are in advanced discussions to transfer their existing joint credit card activities in China to a newly established joint venture company.
The proposed new joint venture company will be an extension of HSBC’s co-operation agreement with BoCom’s Pacific credit card unit, which already has over 11m cards in force. HSBC and BoCom entered into this agreement in 2004 following HSBC’s acquisition of a stake in BoCom. The agreement enabled HSBC to provide technical and management support to the Pacific credit card unit operated under BoCom. It is intended that the unit will be transferred to the new company.
The proposed joint venture is expected to be named Bank of Communications & HSBC Pacific Credit Card Company Limited. It is expected to have an initial registered capital of RMB2.5 billion. BoCom will inject RMB2 billion for an 80% stake in the joint venture, while HSBC will pay RMB1.158 billion for its 20% interest in the share capital, including a premium (RMB658m) to the par value of the shares. The consideration from HSBC will be satisfied from the HSBC Group’s internal resources.
China’s credit card market penetration remains low with only 0.11 cards issued per capita. The joint venture aims to tap a market which is expected to see exponential growth in the coming years particularly as, of the 1,800m cards issued by 235 issuers in 2008, over 90% comprised ATM or debit cards with no revolving credit line.
The transaction remains subject to agreement of final terms and conditions and will be subject to regulatory approvals.
