TPG exits a more diversified UT Capital

It is a difficult balance to strike, confirmed by intermittent market volatility. TPG Capital's priorities on acquiring financial leasing business UT Capital Group in 2008 included improvements to processes and management, but it also wanted to diversify the customer base so the company wouldn't fall victim to these forces.

Having once been UT's predominant focus, construction now accounts for just 4% of its business. The company finances equipment purchases for small and medium-sized enterprises (SMEs) across nine verticals, with healthcare, education, printing and packaging, and machine tools the most prominent.

"You go where your customers are," says a source close to the company, "and if you think about where China is going, it is investing in areas like education and industrial businesses."

UT Capital comprises two units - financial leasing business UniTrust and heavy-truck leasing business UniFortune. It also owns a trade finance platform, UniCircle. UniTrust is the main operating subsidiary, providing services to 3,000 corporate customers across 260 cities. The company claims to be the third-largest operator in China's financial leasing space. Net assets stood at RMB2.4 billion as of June 2013, while first-half net profit came to RMB199 million.

Last week, TPG agreed to sell UT Capital to Haitong International Holdings, a subsidiary of domestic brokerage Haitong Securities, for $715 million after a competitive bidding process.

The private equity firm bought UT Capital - then known as Nissin Leasing - from Japan's NIS Group in 2008. It paid JPY20 billion (then $181 million) for a 40.66% stake in struggling NIS and also agreed to inject $102.5 million into Nissin Leasing, taking a 50% interest in the business, with the option to assume full control.

The arrangement with NIS didn't work out as planned; TPG agreed to sell most of its shares to a group of domestic investors within 12 months of the original deal and made a full exit in 2009. However, by this point it already owned the China business outright. The deal structure complicates calculations of TPG's return, but AVCJ understands the money multiple is around 2.5x.

Haitong expects to exploit synergies between UT Capital and its existing brokerage, corporate finance and asset management platform, with plans to offer a more comprehensive set of financial services to leasing customers. There is no shortage of demand. 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.

"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," said Siming Li, CEO of UniTrust.

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