HONG KONG (Reuters) – An investor consortium led by U.S. buyout giant Kohlberg Kravis Roberts & Co announced on Wednesday that it poured a combined $160 million into a Chinese financial leasing firm to help it expand business. Besides KKR, other investors in the consortium include the Government of Singapore Investment Corp (GIC), the city-state’s sovereign wealth fund, and China International Capital Corp, an investment banking joint venture one-third owned by Wall Street bank Morgan Stanley (MS.N), according to a joint statement.
After the deal, state-owned Sinochem Group will retain a controlling stake in International Far Eastern Leasing Co Ltd, based in Shanghai, China’s financial hub.
“We look forward to fully utilising our financial services industry expertise and global network to support the company as it continues to grow and develop into a world-class financial institution,” said David Liu, head of Greater China for KKR.
KKR has long-time investment experience in the global financial service sector.
Liu, a Columbia University graduate, joined KKR in 2006 from Morgan Stanley where, as its co-head of Asia private equity business, he led landmark deals including buying a stake in Ping An Insurance (601318.SS) (2318.HK), China’s No. 2 life insurer.
The statement did not give any further financial details but a source familiar with the situation said the investor group led by KKR can own around 30 percent of Far Eastern after the firm issued new shares in a private placement and thereby expanded its capital base. Far Eastern and KKR declined to comment.
China has more than 100 small and big financial leasing companies, but only a few are actively engaged in the business. Some small financial leasing companies have held a licence without doing a major lending deal for years.
Beijing is promoting its financial leasing business, which some analysts said would have huge market potential due to a lack of financing channels for enterprises in China where regular bank lending service is strictly guided by the central bank.
China’s Big Four banks led by Industrial and Commercial Bank of China (601398.SS) (1398.HK), now the world’s largest bank by market value, hold a combined around 50 percent market share of domestic loans, mostly for big state-owned enterprises.
“Financial leasing is an emerging business in China. Banks often want to do big loan businesses but now profit margins from big loans for big state-owned enterprises is in fact very small, while the financing demand for small- and medimum-sized private enterprises (SMEs) is huge,” said the source.
Far Eastern, which the source said has more than 400 employees, seeks to provide financing solutions for its clients with specific industry focus and is particularly keen on China’s fast-growing SMEs, which already contribute to more than half of China’s annual economic growth.
Far Eastern targets sectors with stable cash flow and sustainable growth potential, including those in the medical, printing, education, infrastructure construction, shipping, and machine tool sectors, the statement said.
By George Chen
(Editing by Jacqueline Wong)