updated 12/18/2006 10:27:52 AM ET 2006-12-18T15:27:52

A Citigroup Inc.-led consortium won approval Monday to buy a Chinese regional bank in a $3.1 billion deal that would give a foreign lender control of a Chinese institution for the first time in the country's newly opened market.

The closely watched deal comes as foreign institutions are spending billions of dollars to establish a foothold in China's state-dominated banking industry. Chinese banks are eager for foreign strategic partners with capital and skills to help them modernize operations.

Approval of the purchase of Guangdong Development Bank was announced on the Web site of the China Banking Regulatory Commission. It said the purchase should be completed quickly but didn't give a timeframe.

A spokesman for Citigroup's China headquarters in Shanghai, Stephen Thomas, said the bank had no immediate comment.

Citigroup, the biggest U.S. financial institution, said last month that its group had won the bidding for the bank. It had offered 24.3 billion yuan ($3.1 billion) for an 85.6 percent stake and operational control.

Guangdong Development Bank, based in the booming southern province of Guangdong near Hong Kong, is one of China's feeblest banks, which apparently prompted regulators to allow the foreign takeover in hopes of turning it around.

The bank had assets of 2.7 billion yuan ($345 million) at the end of June; it lost 150 million yuan ($19 million) last year, according to a stock market filing by China Life Insurance Co., one of the partners in the Citigroup consortium.

"After the investment group completes the transaction, Guangdong Development Bank's reorganization still has a large amount of work to do," said the banking agency statement. "The investors should continue to make great efforts to turn it into an internationally competitive, modern commercial bank."

Beijing fully opened its banking market to foreign competitors on Dec. 11, ending restrictions on handling retail business in Chinese currency.

But foreign ownership of Chinese banks is still restricted.

The deal would give Citigroup a 20 percent share of the bank, the highest level allowed for an individual foreign investor, according to an earlier announcement by Citigroup.

The other investors are IBM Corp., which will take a 4.74 percent stake; Chinese power utility State Grid Corp. and China Life, each of which will hold a 20 percent stake; Beijing-based CITIC Trust, with 12.85 percent and Yangpu Puhua with 8 percent, according to earlier Citigroup statements.

That would comply with Chinese rules that limit foreign investors to a total stake of 25 percent in a bank.

Citigroup had been competing with a consortium led by Societe Generale SA of France for control of the bank and its 501 branches.

IBM joined the Citigroup bid in hopes that a connection to Guangdong Development Bank would lead to service deals to modernize its technology and business practices.

Foreign banks have invested billions of dollars in China to buy minority stakes in banks and help set up credit card and other services.

So far this year, foreign investors have spent $18.6 billion on minority stakes in Chinese banks, according to capital markets data provider Dealogic.

Copyright 2006 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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