The discount in the share price of Seven Group Holdings continues to widen.

The merger between Seven Network and Westrac to create Seven Group Holdings (66% owned by Kerry Stokes), was done at a price of $8.70 per Seven Network share.

Seven Group shares have traded under that, and the discount has widened as investors have shied away from the stock because of Mr Stokes' level of control and the well publicised weak agreement between Westrac and Caterpillar Inc of the US over the Australian and Chinese distribution and dealership rights.

Seven Group shares have gradually sunk from around $7.60 in early May to around $6.16 on Tuesday, a day before online reports suggested another big move for the Stokes-controlled company, and then confirmation from Seven yesterday.

Mr Stokes's company will invest $US250 million of Seven Group Holdings' cash into the forthcoming float of China's Agricultural Bank, the weakest of the country's big four banks that was all but broke in 2008 with non-performing loans equal to almost a quarter of its capital.

That confirmation saw the shares ease another 18c to $5.98, a new low for the stock and down almost 3% on the day and well under the valuation of Seven Network in the merger earlier in the year.

It is the first major move by Seven Group Holdings, and will no doubt again trigger concern about the use of the cash and remind the market of the "Stokes discount", which is the discount investors are applying to the shares for the company's control by Mr Stokes and his penchant for non-strategic investments.

When the Seven Network (the forerunner of Seven Group) was a listed company, it invested hundreds of millions of dollars from the KKR sale in a wide range of dividend paying companies (led by a big whack of Telstra shares) for the tax reducing-imputed dividend income, and took hundreds of millions of dollars in write-downs and losses as stockmarkets tanked in the global crash in late 2007 and through 2008.

He also used the cash to stalk West Australian Newspapers and Consolidated Media Holdings. While both were media stocks, investors thought that the cash raised from selling 46% of Seven's TV and magazines business to KKR should have been used to reward other shareholders, or make a major one-off deal.

Then Mr Stokes proposed to sell his privately-owned Westrac Caterpillar earthmoving dealership and distributor into Seven Network in exchange for increasing his stake from around 48% in Seven Network to 66% in Seven Group Holdings, with the $1 billion in cash in Seven Network used to pay down Westrac debts of around $600 million.

Now the remaining cash is going to buy a small, but highly visible stake in the $US23 billion IPO for Agricultural Bank.

But for Mr Stokes and his relationship with Caterpillar, the investment does make some sense.

Mr Stokes has the Caterpillar dealership in north east China through Seven Group Holdings' subsidiary, Westrac, has media interests in Shanghai and his wireless business in Australia has bought technology and systems from Huawei, the Telecom's equipment group that has emerged from nowhere in the past decade to be one of the flagship companies for China.

The fact that he has been sought out as a cornerstone investor in such a high profile float of a bank by the Chinese government, indicates his influence and standing in official Chinese circles. He is very well connected.

His involvement in the IPO as a cornerstone investor puts Mr Stokes is in the same group of influential foreigners as Standard Chartered Bank, Rabobank, Archer Midland Daniel, Hong Kong's richest man, the main Singapore wealth fund and wealth funds from the Middle East. For all the bombastic talk of executives from BHP Billiton and Rio Tinto plus people like Twiggy Forrest about their links and knowledge of China, Mr Stokes is a key Australian businessman, so far as the Chinese government is concerned.

No other Australian group, especially a bank, has been invited. So far he is only the second identified individual investor (Seven group Holdings is his company, seeing he owns 66%) along with Hong Kong's multi billionaire, Li Ka-shing (Hutchison Whampoa).

Other investors in the float include sovereign wealth funds from Qatar, Kuwait and Singapore, the London-based Standard Chartered Bank, and the Dutch financial services firm Rabobank, one of the world's largest farm lenders (and an AAA rated bank) are other investors in the float.

Temasek, the Singapore state investment fund plans to invest $US200 million, and Li Ka-shing, Hong Kong's richest man, is also an investor. Standard Chartered has agreed to take $US500 million in shares, while Rabobank will buy $US250 million. Both groups have entered into partnerships with Agricultural Bank.

Seven said in a statement yesterday afternoon:

"Seven Group Holdings Limited (Seven) today announced the signing of a Memorandum of Understanding and an Investment Agreement with the Agricultural Bank of China, one of the four biggest national banks in China - pursuant to which Seven will become one of a number of cornerstone investors in the bank's forthcoming initial public offering in Hong Kong and Shanghai.

"These agreements significantly strengthen Seven's existing relationships in China and allow the company to expand its participation in China's economic growth and support the growth of WesTrac China.

"As part of the investment agreement, Seven will invest $US250 million as a cornerstone investor in the IPO of Agricultural Bank of China as part of a broad strategy to underpin the development of Seven's WesTrac China business and create new opportunities for Seven to leverage China's economic growth.

"Agricultural Bank of China is the country's largest bank by retail customers - with 320 million retail clients in China.

"WesTrac China operates as one of only four authorised Caterpillar dealers in China, covering six provinces covering 2.3 million square kilometres in some of China's fastest growing and most mineral rich regions in the north-east of the country. WesTrac China is expected to achieve forecast sales approaching $A900 million in FY2011.

"Details on Seven's investment were released today by Seven Executive Chairman, Mr Kerry Stokes, and Chief Executive Officer, Mr Peter Gammell.

"Our decision to become a cornerstone investor in Agricultural Bank of China's initial public offering makes sound business and financial sense," Mr Stokes said. "This is an investment we see delivering value and strategic return for Seven Group Holdings. We intend this investment to be a hold for the medium term."

The Agricultural Bank was looking for some $US30 billion, but that was cut to around $US23 billion when the European downturn and euro crisis erupted and doubts about China's economic health surfaced.

Seven and the other foreigners will buy shares in the Hong Kong issue in the IPO that will be worth a maximum of $US15 billion. The remaining $US8 billion will be raised from Chinese investors and the shares will be listed on the Shanghai market.

The money being raised is to help replenish the bank's capital base after the lending splurge in China in 2009. Other major Chinese banks are raising cash for the same reason.