Lawyers in Beijing expect a wave of foreign investment into China’s asset management industry. But international private equity firms need not apply.
Last month Standard Chartered Bank, National Council for Social Security Fund, UBS and Citic Capital invested a total of RMB10.37 billion ($1.64 billion) for 16.54% of China Cinda Asset Management. The transaction represented the first foreign investment in a Chinese financial asset management company.
Clifford Chance’s Beijing-based corporate partner Terence Foo, who led the team advising Standard Chartered on the deal, said its success was likely to prompt the country’s remaining three main state-owned asset management companies to pursue a similar path.
“Engaging in financial services in China has traditionally proved challenging for foreign investors, who are required to set up or invest in separate companies to provide a range of financial services,” explained Foo.
Yet, in the past few years China’s four large asset management companies have radically transformed from businesses primarily focused on absorbing non-performing loans of large Chinese banks to conglomerate financial holding companies offering a range of services from underwriting to financial leasing.
“In doing so, they have become very attractive to foreign investors looking to invest in a financial holding company with a number of different business lines,” said Foo.
Approval for this transaction - and any others that follow - is driven by the China Banking Regulatory Commission (CBRC) as well as the asset management companies’ shareholder, China’s Ministry of Finance (MOF).
Foo said the MOF recognized it was important for domestic asset managers to open themselves up to foreign investment to speed up transformation and diversification.
Another lawyer close to the deal said it was clear the CBRC was keen to secure long term investment in this type of transaction from financial institutions that would bring some value-add to China’s financial services. Foreign private equity firms were unlikely to be selected as investors in these deals as a result, he said.
“A lot of foreign private equity investors are very interested in investing in China’s asset management firms but unless they have strong Chinese connection, as Citic Capital did in this transaction, or can demonstrate long term commitment, otherwise they will struggle to win CBRC’s approval,” Foo said.
“The CBRC is not keen to see pure financial investors come in and make a quick buck,” he said. “They are concerned some foreign private equity investors have too short an investment time frame. There are not many examples of CBRC approving private equity investments in CBRC regulated financial institutions,” he added
Cinda is reported to be preparing for an initial public offering (IPO), which is likely to involve an A share listing and Hong Kong H share listing similar to the model followed by other major Chinese financial institutions.