HSBC's plan to acquire 19.9 percent of the mainland's Bank of Communications is progressing smoothly, Sir John Bond, chairman of the board of HSBC Holdings plc, said on Monday.

"Those discussions have gone well and we have now reached agreement in principle on the terms of our investment. We expect to make a further announcement shortly," he told reporters when announcing HSBC Holdings' 2004 interim results.

The UK bank revealed in June that it was negotiating the purchase of a 19.9 percent stake -- the maximum share a single buyer may hold in a Chinese bank -- in the state-owned, Shanghai-based Bank of Communications. The stake is reported to be worth US$1 billion to US$2 billion.

The signing ceremony clinching the deal is expected to take place in Beijing sometime this week, although neither HSBC Holdings nor the Bank of Communications will disclose details. However, Bond is reportedly scheduled to be in the capital city from Thursday through Saturday.

The banks are preparing necessary documents and finalizing details according to Song Feng, a spokesman for the Bank of Communications. He declined to provide further details.

The mainland bank, with 2,700 branches nationwide and about US$115 billion in assets at the end of 2003, is the largest Chinese bank to take on a partner in this manner, and the stake HSBC is acquiring is the largest yet sold.

In announcing HSBC Holdings' interim results, Bond noted that business alignments between the commercial banking teams in Hong Kong and the mainland resulted in substantial growth in the number of mutual business referrals between the two areas.

Group operating income rose 35 percent to US$25.0 billion, with net profit jumping 55 percent to US$6.4 billion, well beyond forecasts. HSBC Holdings' profit was the highest ever achieved in a six-month period.

Bond attributed the solid performance to the domestic as well as the US economic recovery. He noted that Hong Kong's economic growth had accelerated significantly, buoyed by rising business and consumer confidence and by increased tourism from the mainland. The improved property market and employment levels also had a positive impact on the company's performance.

(China.org.cn, Xinhua News Agency August 3, 2004)