China Minsheng Banking Corp, the country's 7th-largest bank by market value, will buy up to 20 percent of UCBH Holdings Inc - the biggest bank serving the Chinese community in the United States, the Chinese lender said Monday.

The deal would be the first strategic investment in a US bank by a Chinese mainland financial institution and give UCBH a stronger exposure to the mainland market.

"The stake purchase will serve as Minsheng's platform to explore the overseas market," said Gu Junlei, a banking analyst with Orient Securities.

According to a Minsheng statement, the stake purchase will be divided into three phases: Minsheng will initially buy 5.4 million shares for $96 million, representing a 4.9 percent stake. Before March 31, 2008, the bank will increase its ownership to 9.9 percent. And by June 2009, it may increase its holding to 20 percent, becoming the largest single shareholder in UCBH.

"The acquisition will have limited impact on Minsheng's financial status, given the portfolio in the bank's total assets," Gu explained.

However, as 77.16 percent of UCBH's loans are related to the real estate business, the bank's returns largely depend on the US property market, Gu added.

UCBH, the holding company of United Commercial Bank, has $10.7 billion in assets and 70 branches in the US and one in Hong Kong, with quite a number of its clients foreign citizens of Chinese origin.

It plans to use the proceeds from the initial sale for a pending acquisition in China which will be closed in the fourth quarter, a UCBH statement said.

In March, UCBH said it would buy China's Business Development Bank Ltd for $205 million to gain a foothold in the world's fastest-growing major economy.

Minsheng's deal follows China Development Bank (CDB) taking 5 percent in Britain's third largest lender Barclays in July.

"More and more Chinese banks will take stakes overseas as they expand overseas business," Wu Yonggang, an analyst with Guotai & Junan Securities, told China Daily.

"And it is also an effective way to deal with the appreciation of the renminbi," Wu added.

Minsheng shares closed at 16.3 yuan ($2.17) Monday, up 3.1 percent from the previous trading day.
 

Editor: Yan