HSBC and Bank of Communications plan to create JV for Chinese credit card operation

Expands HSBC’s footprint in the world’s fastest growing emerging market.

Maximises opportunities in China’s fast developing consumer mass market.

Cements strategic tie-up with China’s fifth largest bank

The Hongkong and Shanghai Banking Corporation Limited and the Bank of Communications Co. Ltd. (BoCom) are in advanced discussions to transfer their existing joint credit card activities in China to a newly established joint venture company.

HSBC has been a strategic investor of BoCom, China’s fifth largest bank by total assets, since 2004. It holds a 19.01 per cent interest in BoCom and, through various agreements, co-operates with BoCom on over 60 initiatives including renminbi trade settlement, payments and cash management services and credit cards.

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 11 million 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 (US$368 million). BoCom will inject RMB2 billion for an 80 per cent stake in the joint venture, while HSBC will pay RMB1.158 billion for its 20 per cent interest in the share capital, including a premium (RMB658 million) to the par value of the shares. The consideration from HSBC will be satisfied from the HSBC Group’s internal resources.

While China’s credit card market saw 58 per cent growth in circulation figures to 142 million in 2008 and a 320 per cent and 76 per cent surge in outstandings in 2007 and 2008 respectively, the market penetration remains low with only 0.11 cards issued per capita. The joint venture will tap a market which is expected to see exponential growth in the coming years particularly as, of the 1,800 million cards issued by 235 issuers in 2008, over 90 per cent 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. A further announcement will be made as and when appropriate.