Silicon Valley Bank's China JV reassures stakeholders
SPD Silicon Valley Bank, the China-based joint venture of SVB Financial Group, has offered assurances about the robustness of its operations following the closure of SVB Financial-owned US lender Silicon Valley Bank (SVB), while listed Chinese clients of the US bank largely downplayed their exposure.
SPD Silicon Valley Bank said in a statement that it has “a standardised corporate governance structure and an independent balance sheet.” It added that it remained committed to serving Chinese companies in the science and technology sectors.
The Chinese entity was established in 2012 by SVB and Shanghai Pudong Development Bank. In 2015, it won approval to provide renminbi-denominated services to clients within China. Total assets amounted to CNY 23.9bn as of December 2021. No indication was given as to the future of the joint venture if SVB is sold or in some way restructured.
The overall dependency of Chinese companies on SVB’s US balance sheet is unclear. Several Hong Kong-listed biotech companies – including Brii Biosciences, Cstone Pharmaceuticals, Jacobio Pharmaceuticals – gave details of their cash deposits with the lender. Brii had the highest exposure, holding 9% of its cash and bank balances with SVB.
SVB was closed and placed into receivership under the US Federal Deposit Insurance Corporation (FDIC) on March 10 following a bank run. The bank was a key source of funding for many venture capital-backed healthcare and technology companies in the US and it also provided credit lines to VC firms and private banking services to entrepreneurs.
Deposits surged amid the post-pandemic technology boom – SVB Financial reported USD 189bn at the end of 2021, up from USD 61.8bn in 2019 – and SVB invested heavily in long-dated Treasury bonds. Rising interest rates caused these bonds to fall in value and the bank was left with large unrealised losses at a time when client withdrawals increased as other financing channels tightened.
Last week, SVB announced it had generated USD 21bn through the sale of investment securities and would raise USD 2.25bn through a stock offering. Nevertheless, Moody’s downgraded SVB Financial and the pace of withdrawals from the bank intensified.
Following the regulatory intervention, more than 300 global VC firms have pledged to continue doing business with the bank in the event that it is purchased and recapitalised. Over the weekend, regulators said depositors would be fully repaid.
SVB entered Asia in the early 1990s and it has been in China since 1999. In addition to SPD Silicon Valley Bank, SVB Financial’s China-based assets include local advisory entities in Beijing and Shanghai, a stake in a loan guarantee business in Shanghai, and interests in two renminbi-denominated funds it manages for the Yangpu district government in Shanghai.
The SVB website refers to SVB Asia Link, which provides expertise to companies and investors along the US-China cross-border channel.
As of December 2022, 20% of SVB Financial’s approximately 8,550 full-time employees were located outside of the US, including in China, Hong Kong, and India. SVB sold its India-based venture debt operation to Temasek Holdings and United Overseas Bank (UOB) in 2015. Now known as InnoVen Capital, the business has expanded region-wide.
Speaking to AVCJ on March 10 after the run on SVB had begun but before regulators stepped in, Paul Ong, a partner at Innoven, described SVB as the creator of an asset class that accelerated Silicon Valley’s early momentum but suggested that further proliferation of the concept in Asia would require lenders to do more.
“When you look at the equity side, whenever you talk about the value they bring to companies, the focus is never on deal structure. There are a lot of companies out there that pick their partners based on the additional value-add that they can bring,” Ong said, referring to Southeast Asia’s venture debt ecosystem.
“If we’re the only ones in the market, what differentiates us is the deal structure. If you look at the world of lending globally and you look at banks, lending should not be the novelty that builds a great company.”
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