* Sovereign wealth fund may invest $9 bln - Spanish source
* Says Chinese private investors mull $4 bln investment
* Spanish PM Zapatero visiting China
* Savings banks may need 100 bln euros of extra funds in all
(Adds comment, background, details, quotes, market reaction)
By Fiona Ortiz
MADRID, April 13 Chinese investors including the
country's sovereign wealth fund may inject $13 billion into
Spanish banks, a government source said on Wednesday after
Spain's premier met financial authorities in Beijing.
There was no immediate comment from Beijing and it was not
clear what terms would make the risk attractive to China, which
has invested cautiously in overseas financial markets in the
last couple of years partly to avoid any criticism it is
Concerns about delays in recapitalising Spain's ailing
savings banks -- heavily exposed to bad loans from a burst
property bubble -- have overshadowed the euro zone state's
efforts to convince markets it will not need a bailout.
According to official estimates the savings banks -- which
are known as cajas and hold about half the deposits in Spain's
financial system -- need about 15 billion euros in fresh funding
to meet strict new financial targets.
But private estimates go eight times higher than that when
taking into account future losses from real estate writedowns.
Spanish Prime Minister Jose Luis Rodriguez Zapatero is
visiting China and Singapore this week, meeting with officials
and fund managers to persuade them that Spain's sovereign bonds
and its financial system are a good investment.
Speaking by telephone from Beijing, the Spanish government
source told Reuters that Chinese sovereign wealth fund China
Investment Corporation was studying an investment of $9 billion,
and that private entities might add an additional $4 billion.
China is looking at two possible investment structures,
either investing directly in specific cajas, or savings banks,
or creating a general fund that the cajas would be able to tap,
another Spanish government source told Reuters in Beijing.
"If this is true it is positive for the market. If CITIC or
another Chinese vehicle invests 9 billion euros that would
represent around 5 percent of the equity in the Spanish banking
system," said a London-based analyst who asked not to be named.
"I wonder if some of this is to buy banks' or cajas' debt,
in which case the impact gets diluted."
Spanish banking shares .IBAN.BC traded flat on Wednesday,
underperforming a European sector .SX7P up 1 percent.
Spain's country risk, the premium investors demand on
Spanish bonds over comparable German debt, ES10YT=TWEB
DE10YT=TWEB rose to 176 basis points after falling as low as
171 basis points a day earlier when China pledged to continue
buying Spanish government bonds [nL3E7FD0H0] [ID:nLDE73B12S].
DOUBTS ABOUT THE CAJAS
Spain's borrowing costs have soared in the past year and a
half due to concerns about its large deficit, but some
confidence has returned as Zapatero has cut spending and pursued
the consolidation and recapitalisation of the savings banks.
But while Qatar and United Arab Emirates sovereign wealth
funds intend to invest 450 million euros in the cajas, private
investors who have looked at the books say they will only invest
at a steep discount, due to doubts about the scale of overall
In recent weeks one merger of four savings banks fell apart,
and two financial entities have indicated they need more capital
than originally thought. [ID:nLDE7370GW]
Spain's central bank is scheduled to report on Thursday
which recapitalisation plans it approves from the cajas it
deemed to be short of capital. [ID:nLDE73C0TC]
Zapatero met on Wednesday morning in Beijing with
representatives from China Investment Corporation; top Chinese
financial conglomerate CITIC Group; China's banking regulatory
commission and other entities.
Dean Tenerelli, a fund manager at T Rowe Price
International, said Chinese interest would be strategic rather
than seeking returns.
"There are two reasons behind China's investment interest.
Firstly political, in terms of strengthening links with Western
Europe and spreading their vast wealth around. Secondly, they
like to study how foreign countries and companies are run. Spain
has a reasonably efficient banking system so they can learn from
that," Tenerelli said.
(Additional reporting by Judith MacInnes and Sonya Dowsett
in Madrid and Simon Rabinovitch in Beijing; Editing by John