SHANGHAI (Reuters) – China Construction Bank (CCB) is aiming to raise 2.6 billion yuan ($380 million) in its first yuan-denominated private equity fund, as part of an effort by the country’s second-biggest lender to broaden its revenue streams.
CCB, through its Hong Kong unit CCB International (Holdings) Ltd, is raising 1 billion yuan from China’s wealthy individuals, after securing 1.6 billion yuan from institutions for its CCBI Healthcare Fund, which targets healthcare firms ahead of their listings, a sales document seen by Reuters showed.
CCB (0939.HK)(601939.SS) and other Chinese lenders are stepping up efforts to generate more revenue from businesses other than lending as interest margins fall and the government starts to tighten credit.
“It’s an irreversible trend for banks to offer various types of wealth management products to clients,” said Jin Lin, analyst at Orient Securities Co. “Through this innovative product, Construction Bank can charge fund management fees and increase its commission income.”
In the first six months, CCB’s investment banking revenue surged 66 percent and its commission and fee-based incomes rose 16.1 percent, partly offsetting a 7.75 percent decline in interest incomes.
Rival Bank of Communications (3328.HK) (601328.SS), which this week became the first Chinese lender allowed to start an insurance business, said on Wednesday it was seeking a brokerage licence.
RUSH FOR FUNDS
CCB’s fund launch comes as both foreign and domestic private equity firms rush to raise money in China, where the government is encouraging private investment to sustain an economic recovery triggered by government stimulus.
Blackstone Group LP (BX.N), Prax Capital and CLSA have all announced plans in the past month to launch local-currency private equity funds in China.
CCB said private equity investments are relatively safe now for investors, after stock and property markets surged in the first half.
“Credit policies will be gradually tightened in the second half, so a bubble burst could happen at any time,” CCB said in the sales document.
The CCBI Healthcare Fund, which got government approval in April, will invest in healthcare companies ahead of their initial public offerings, at prices about 10 times the companies’ earnings.
That compares with an average price-to-earning ratio of 38 in 2008 for China’s publicly traded healthcare companies, the world’s most expensive, CCB said.
The fund has attracted 500 million yuan from Yangtze Electric Power Co and 200 million yuan from other institutional investors. CCB International, the Hong Kong unit, itself will put up 100 million yuan in the fund, while CCB’s parent China Jianyin Investment will invest 800 million yuan.
The fund, which will have a life cycle of 5-7 years, is also raising 1 billion yuan from wealthy individuals by selling a wealth management product though some of CCB’s 20,000 outlets in China.
China’s healthcare industry has been growing twice as fast as the country’s economy in the past decade, CCB said. (US$1=6.832 Yuan)
By Samuel Shen and Helen Ding
(Editing by Muralikumar Anantharaman)