April 6 (Bloomberg) -- Huaxia Bank Co., China's fourth- biggest listed lender, named Deutsche Bank AG and six other foreign banks as bidders for the 25 percent stake its selling in an attempt to improve management standards.

Potential buyers include DBS Bank Holdings Ltd., Singapore's biggest lender, Societe Generale SA, France's third-largest bank, BNP Paribas SA, France's No. 2 bank, and Sumitomo Mitsui Financial Group Inc., Japan's third-largest bank by assets, according to Zhang Taiqi, an investment relations official of Huaxia. Beijing- based Huaxia plans to select two to three foreign investors out of the seven bidders to buy stakes, Zhang said.

China is encouraging banks, facing fiercer competition from overseas rivals such as HSBC Holdings Plc. and Citigroup Inc. after 2006, to sell shares to foreign investors to boost capital and introduce international management standards. Chinese banks are allowed to sell a maximum 25 percent stake to foreign investors, with a single investor holding no more than 20 percent.

``Being in touch with so many foreign banks at the same time means that the talks may still be preliminary,'' said Liang Jing, Shanghai-based analyst of Guotai Junan Securities Co. ``Huaxia seems eager to attract foreign investment to improve its management.''

Huaxia Bank Chairman Liu Haiyan told reporters on March 6 that the lender will start formal talks on selling a stake ``soon,'' without giving details.

Huaxia Bank's shares have slumped 10 percent this year, more than a 6 percent drop in the benchmark Shanghai Composite Index. The stock was unchanged at 3.73 yuan at 11:13 a.m. in Shanghai today.

Gaining Footholds

HSBC Holdings Plc, ING Groep NV, Citigroup Inc, Commonwealth Bank of Australia, Hang Seng Bank Ltd. and Bank of Nova Scotia are among foreign banks that have bought stakes in Chinese lenders to gain a foothold in an economy with 1.3 billion people and 1.47 trillion yuan ($177 billion) in household savings. Ten foreign lenders had invested $3.2 billion in Chinese banks as of Dec. 31.

Eight foreign investors are currently in talks to invest in domestic lenders, the China Banking Regulatory Commission said last month. Top banking regulator Liu Mingkang said that the government wants foreign investment to ``raise the level of financial services and internal controls.''

Buying Stakes

ING Groep NV, the biggest Dutch financial-services company, on March 25 agreed to buy 20 percent of Bank of Beijing Co. for 1.78 billion yuan, the latest deal by foreign banks. The International Finance Corp., the World Bank's private equity arm, will also buy 5 percent of China's second-biggest city bank.

Huaxia Bank, which reported an 11 percent increase in third- quarter profit to 295.8 million yuan, in October obtained shareholder approval for a plan to sell 840 million additional shares to boost capital. The lender's bad-loan ratio stood at 3.67 percent of total lending at the end of June, down from 4.23 percent a year earlier.

Huaxia Bank also said today that its fourth-biggest shareholder, Lianda Group Co., will be forced to auction its stake in the lender, valued at about 844 million yuan, to repay debts.

Lianda Group, which currently owns 360 million non-tradable shares of Huaxia, will be ordered by court to sell 289 million of them in an auction on April 15, according to a notice published in today's China Securities Journal. Lianda is selling the shares to repay 640 million yuan of debt owed to Yanzhou Coal Mining Co., Huaxia's Zhang said.

The 289 million shares are valued at 2.92 yuan per share, compared with book value of 2.03 yuan apiece. The shares will be sold through bidding in an auction that will be held in China's eastern Shangdong province.

``This is share transaction between shareholders, so I don't think the share sale will affect Huaxia Bank's performance,'' said Qiu Zhicheng, Shanghai-based analyst of Xiangcai Securities Co.

To contact the reporter on this story: Samuel Shen in Shanghai Sshen3@bloomberg.net

Last Updated: April 6, 2005 00:33 EDT