TPG clear to exit China bank to Ping An

The latter has reportedly received the key regulatory approvals needed for completion of the sale.

Estimates of the return have been as high as a 7x. This would mean a profit of $2.14 billion. The proposed plan has been delayed since last June, while PRC regulatory authorities mulled over their decision.

Weijian Shan, Managing Partner at TPG in Hong Kong who led the original investment, told AVCJ, “In five years, we tripled its assets, brought its NPL ratio down from 11.4% to 0.63%, and improved profitability from about $40 million to about $740 million last year.”

Ping An already owns around 4.7% of SDB, and will become the largest overall shareholder with the completion of the deal. It will also purchase new shares in SDB for a total cost of around $3.2 billion. The move is part of Ping An’s strategy to grow into a diversified financial conglomerate, with banking and asset management arms in addition to its core insurance focus.

TPG originally invested in what was clearly a distressed business. Because of the rescue line the group threw out, TPG was long seen as having an effective control stake in the bank, despite the relatively low percentage holding. SDB’s profit margins in particular were highly depressed at the time of the 2004 deal. Opportunities for similar deals in future though, may be limited. Shan confirmed that “there is certainly a lot of room for improvement in China’s banks in general.” And a recent survey by PricewaterhouseCoopers found that almost 75% of foreign banks operating in China remain deeply skeptical of their local peers’ risk management systems.

However, AVCJ banking sources maintain that PRC regulators are unlikely to allow significant outside investment into the sector in future. Mervyn Jacob, Financial Services Leader for China and Hong Kong at PwC, pointed out that the global crisis had led to PRC banking regulators “adopting a more measured and conservative approach.”

As for the capabilities of private equity firms to improve Chinese banks, Shan says these depend very much on the particular investor. “There are those who are turnaround specialists, like ourselves, particularly in the financial sector. There are also those who have no experience in banking.” This echoes the view of AVCJ’s banking sources, who feel that banking is one of the most challenging sectors for private equity to materially enhance value.

• Tweet  
• Facebook  
• LinkedIn  
• Google plus  
• Save this article  
• Send to  

• Topics
• Greater China
• Financials
• Exits
• TPG Capital