Looking To Exit Chinese Bank, TPG Heeds Earlier Lesson

HONG KONG/SHANGHAI (Reuters) – Chinese regulators are expected to approve a change of ownership at Shenzhen Development Bank (000001.SZ) that will allow U.S. private equity firm TPG to exit its biggest China investment, and signal Beijing’s preference for local investors to control the mid-sized bank.

Some of Shenzhen Development Bank’s (SDB) top shareholders also support TPG’s exit plan, said people close to the situation.

Ping An Insurance (Group) Co (601318.SS) (2318.HK), China’s No.2 life insurer, said on Friday it would buy TPG’s stake in SDB, the first foreign investor-controlled Chinese bank, for 11.45 billion yuan ($1.68 billion) in cash or via a share swap.

Local fund managers, including Fullgoal Fund Management and Haitong Securities, two top-10 shareholders in SDB, said they like the deal.

SDB needs a strategic partner to bring in fresh capital to support its expansion, while Ping An is looking to boost its banking business and become a financial conglomerate.

“From a regulatory point of view, I don’t see any reasons to kill the deal,” said Alex Wang, partner at law firm Paul Hastings in Shanghai. “For TPG, it’s natural for them to exit when lock-ups expire at a time when Western institutions are eager to recoup their investment.”

When General Electric’s (GE.N) consumer finance arm agreed in late 2005 to pay $100 million for a 7.3 percent SDB stake — in a deal initiated by TPG and widely seen as a precursor to TPG’s exit — Chinese regulators rejected the deal, reluctant, sources said, to see one foreign investor replace another at SDB.

Regulators were also disappointed that neither TPG nor SDB had given them a heads-up on the deal, details of which were first aired in local media, said the sources, who asked not to be identified due to the sensitive nature of the matter.


Four years on, TPG is smarter.

When Ping An expressed its interest in SDB, the U.S. private equity firm was quick to notify the securities and banking regulators in Beijing.

Ping An, which already has around 5 percent of SDB, TPG and SDB declined to comment for this article.

TPG bought 18 percent of SDB for $155 million in 2004 and has been seeking buyers since last year as its entire stake will come out of a lock-up period next year.

Before the Ping An deal, TPG had been in talks with foreign private equity and hedge funds, but these stalled over regulatory concerns, said the sources.

“Ping An is not a foreign investor, the deal doesn’t put national interest at risk, and it’s a purely business decision,” said Fan Kunxiang, a banking analyst at Haitong Securities.

“So, I can imagine it’s not the kind of deal that would become highly controversial and I can’t think of any regulatory hurdles,” he said.

TPG is the only foreign private equity fund to control a Chinese bank, a sign of Beijing’s reluctance to approve private equity-backed investments in its lenders, the sources said.

In 2007, Washington D.C.-based The Carlyle Group CYL.UL scrapped a plan to buy a 7.99 percent stake in a small bank in the southern Chinese city of Chongqing, and was also forced to quit a consortium led by Citigroup Inc (C.N) to buy control of Guangdong Development Bank for $3.1 billion.

Even Chinese private equity investors, such as CITIC Capital, have struggled to win regulatory support to buy into small Chinese city banks, the sources said.

Chinese media often describe private equity funds as speculators, a negative label in local business culture.

By George Chen and Samuel Shen

(Editing by Ian Geoghegan)