TPG exits China leasing business to Haitong Securities for $715m

TPG commenced the sale process about six months ago after a number of strategic investors made inquiries about the business, recognizing the PE might be considering its exit options, a source familiar with the situation told AVCJ. At least 15 Chinese and foreign parties registered initial interest and multiple bids were submitted.

For Haitong International, a subsidiary of domestic brokerage Haitong Securities, the acquisition presents opportunities for synergies with its existing brokerage, corporate finance and asset management platform. It plans to offer a more comprehensive set of financial services to leasing customers, including direct equity investment and debt and equity financing.

UT Capital comprises two units - financial leasing business UniTrust and heavy-truck leasing business UniFortune. It also indirectly owns a trade finance platform, UniCircle. UniTrust is the main operating subsidiary, providing services to 3,000 corporate customers across 260 cities in China.

TPG bought the business, which was then known as Nissin Leasing, from Japan's NIS Group in 2008.

The private equity firm invested JPY20 billion (then $181 million) for a 40.66% stake in NIS Group. In addition, it agreed to inject $102.5 million into Nissin Leasing's holding company, taking a 50% interest in the business, with the option to assume full control under certain circumstances. This happened within 16 months of the initial investment.

Within 12 months of investing in NIS, TPG agreed to end its capital and business alliance with the Japanese group. Chusho-Kigyo Hosho Kiko and Incubator Bank of Japan agreed to support NIS instead, with the former buying most of TPG's shares. The private equity firm fully exited NIS in August 2009 but retained Nissin Leasing, which by this point it owned outright.

TPG replaced much of UT Capital's leadership team as it reworked the business model, improving underwriting, credit assessment and approvals processes as well as introducing overall management metrics.

This was complemented by geographical expansion and industry diversification. Once UT Capital's predominant focus, construction now accounts for just 4% of the company's business, having been comprehensively overtaken by other industries.

The company claims to be the third-largest operator in China's financial leasing space. Total assets of the business grew from RMB4.4 billion ($719 million) to RMB10.5 billion between 2010 and 2012, while net assets stood at RMB2.348 billion as of June 2013. Net profit came to RMB199 million in the first half of the year.

There is still considerable scope for growth given the challenges SMEs face getting financing from conventional channels. It is estimated that Chinese SMEs rely on banks for just 4% of their financing needs - a world away from 80% in Europe and 30% in the US - yet these companies contribute more than 65% of GDP and are responsible for 80% of jobs.

"We are committed to growing the company to offer more financing solutions to SMEs and solidifying our industry leading position," said Siming Li, CEO of UniTrust. "The China leasing industry currently has a low penetration rate, and as there is increasing demand for alternative sources of capital from Chinese businesses, we believe that UniTrust is well positioned to capitalize on this opportunity."

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• Topics
• Exits
• Greater China
• Financials
• Financial Services
• China
• TPG Capital
• Exit
• Trade sale