The Bank of Communications, China's fifth-biggest lender, has agreed to sell up to a fifth of its shares to HSBC.

The sale of such a stake, seen worth around US$1 billion, would be the largest by a Chinese bank to a foreign investor, reported Sunday's China Daily.

The Shanghai-based Bank of Communications had said in May it was courting firms such as HSBC - one of the more aggressive players in a restrictive arena due to open to foreign banks in 2007.

HSBC, the world's second-largest bank by market value, now owns slices of the Bank of Shanghai and Ping An Insurance, China's second-largest life insurer, which debuted on the Hong Kong Stock Exchange on Thursday after a US$1.84 billion IPO.

Analysts had estimated the sale could be worth about US$1 billion. One industry analyst said the Bank of Communications could command a much higher premium than its rivals had.

"The Bank of Communications can strike a deal to sell its shares at twice their par value, around two yuan (US$0.12) per share, simply because it has better assets than many Chinese peers," said Qin Yuexin, a senior banking analyst at China Southern Securities.

"Both sides have basically reached an agreement on this," said Li Fuan, deputy head of the policy and regulation department at the China Banking Regulatory Commission (CBRC).

The maximum stake that can be sold is 20 percent but the price is still being negotiated.

The Bank of Communications - founded in 1908 during Shanghai's colonial era - plans to slash bad loans and beef up capital this year before an eventual listing.

The lender, whose top shareholder is the Ministry of Finance, aimed to finish a revamp by June 30.

Source: China Daily/Agencies