Jan. 17, 2007 (China Knowledge) – Bank of Nova Scotia (Scotiabank) and the International Finance Corp (IFC) have reached an initial agreement to pay RMB 2.5 billion for a combined 25% stake in Dalian City Commercial Bank.

Scotiabank would pay RMB 2 billion for a 20% stake, which is the maximum allowed for a single foreign investor in the banking industry in China. IFC, the World Bank’s private investment arm, will pay RMB 500 million for the remaining 5% stake.

Dalian bank intends to use the funds from the deal to boost its capital adequacy ratio to the required minimum, from 5% to 8%. In addition to selling shares to foreign investors, Dalian City Bank is also planning to sell bonds to raise more capital. Other fund raising efforts include an IPO launch this year in either Hong Kong or Shanghai.

An agreement to conclude the deal is likely to be signed around the Lunar New Year in mid-February, sources told Reuters.

When the deal concludes, Dalian bank would become Scotiabank's second bank acquisition in China. In 2004, Scotiabank and IFC agreed to buy a combined 25% stake in the small-sized Xi'an City Commercial Bank in northwestern China.

IFC has also bought into several Chinese city commercial banks in recent years, including Bank of Shanghai, in which HSBC holds an 8% stake.