CDB sees reasons to decline Barclays offer

By Eadie Chen

BEIJING (Reuters) - China Development Bank, which holds a 3.1 percent stake in Barclays (BARC.L), sees several good reasons to shy away from the bank's offer of new shares, sources close to the Chinese lender said on Monday.

Barclays plans to issue billions of pounds worth of equity to new and existing shareholders to strengthen its frayed balance sheet. Market commentators had expected that China Development Bank (CDB) would take up the offer to avoid having its holding diluted.

But political and financial concerns make CDB reluctant to invest more money in Barclays than the 2.2 billion euros it paid for its initial stake last July, the sources said. They added that the Chinese bank had not yet made a final decision.

"The losses on that so far, the scandal surrounding the bank's (CDB's) vice president and the bank's ongoing structural reform make it very unlikely that CDB will make any immediate major purchase," an official in the banking sector told Reuters.

CDB has seen the value of its investment in Barclays, made just before the credit crisis rocked financial markets, fall by more than 50 percent over the past 10 months.

"CDB is now very cautious about risks in overseas investments," said a separate banking source close to the Chinese bank. "Even though the price is much lower than last year, who knows whether it might not dip further?"

CDB had been expected to invest $2 billion (1 billion pounds) in Citigroup (C.N) in January, when the U.S. bank sought a massive capital infusion, but opposition from high-ranking officials in Beijing scuppered the deal at the eleventh hour.

Already under criticism for the poor performance of its Barclays' investment, the timing for CDB to purchase more shares in the British bank would prove awkward, the sources said.