June 27 (Bloomberg) -- China Life Insurance Co. boosted its stake in China Minsheng Banking Corp., overtaking Chinese billionaire Liu Yonghao as the biggest shareholder of the nation's only privately controlled bank.

The nation's largest insurer owns 893.6 million shares, equivalent to 6.17 percent of Minsheng, the Beijing-based bank said in a statement to Shanghai's stock exchange. Ping An Insurance Co., the nation's second-biggest, owns 4.93 percent of Minsheng, making it the fourth-largest investor.

State-controlled China Life is stepping up an expansion into banking after rival Ping An won approval last week to buy Ping An Bank. China began allowing insurers to purchase stakes in commercial banks in 2005, prompting them to go on buying sprees with their $79 billion of cash.

``The key question is: What's China Life up to?'' said Gu Zhonghan, a bank analyst at Shenzhen-based E Fund Management Co., which owned 91 million shares of Minsheng Bank as of Dec. 31. ``If it's aiming to become a financial conglomerate like Ping An, then that'll probably kick-start a battle for control. If it only wants to make some quick gains, we'll see some paring of its stake later.''

China Life and Ping An likely view Minsheng purely as an investment, as control would be difficult to achieve because of the bank's dispersed ownership, said Bill Stacey, an analyst at Credit Suisse in Hong Kong. Today's announcement won't drive significant share gains at Minsheng Bank, he said.

Dispersed Ownership

Shares of Minsheng Bank have climbed 30 percent this year. They gained 4.2 percent to 11.59 yuan at 2:10 p.m. in Shanghai today.

Minsheng's 10 largest shareholders each hold less than 10 percent, according to the statement. Beijing-based China Life and Shenzhen-based Ping An each paid 5.45 billion yuan ($716 million) for 714 million Minsheng shares in a private placement in March. Liu's Sichuan New Hope Investment Co. slipped to second-largest stockholder after buying 400 million shares in the placement.

Liu held 854.9 million shares, or 5.9 percent of Minsheng, as of June 22, according to the statement.

None of Minsheng's shareholders controls more than one seat on the bank's 18-member board. About 51 percent of shares are freely tradable, the most among China's publicly traded banks.

The remainder of China Life's Minsheng shares were bought on the secondary market before the private placement, spokesman Cao Qingyang, said in a phone interview today. China Life considers Minsheng a financial investment and hasn't yet decided what to do with its stake, he said. It'll consider other investments in the banking industry, according to Cao.

Distribution Channel?

Unlike Ping An, China Life hasn't signaled any intention of becoming a financial supermarket offering everything from insurance to loans, said Stacey.

China Life owns 20 percent of Guangdong Development Bank, giving it access to the lender's 500 outlets. It was part of a bidding group led by Citigroup Inc., the biggest financial services company, which won approval in December to buy 86 percent of Guangdong Development for $3.1 billion.

Minsheng's strengths lie in corporate rather than retail banking, making it less attractive as a distribution channel for China Life's products, according to Stacey.

Shares bought in the March private placement are subject to a lock-up period of 12 months for Shenzhen-based Ping An and 26 months for China Life.

War Chests

China Life and Ping An have raised a combined $8.7 billion selling shares since December, adding to their purchasing power. Ping An raised $5 billion in February in the world's biggest stock sale by an insurer, and China Life sold $3.7 billion of shares in December.

Minsheng Bank, founded 11 years ago by 59 investors including Liu, a pig-feed tycoon, has carved out a niche among small- and medium-sized companies such as China Small and Medium Enterprise Investment Co. and East Hope Group.

The bank has averaged annual 40 percent gains in profit in the past five years. Its market value has swelled seven-fold since 2002 to 137 billion yuan. Minsheng forecasts a 38 percent gain in profit this year to 5.3 billion yuan.

To contact the reporter on this story: Luo Jun in Shanghai at at jluo6@bloomberg.netJosephine Lau in Beijing at jlau22@bloomberg.net

Last Updated: June 27, 2007 02:12 EDT