TPG gets green light on SDB sale

Ping An Insurance has received regulatory approval to purchase TPG’s 17% stake in Shenzhen Development Bank. The acquisition will be paid in Ping An shares and looks set to make TPG at least an 8x return on its initial investment.

After a delay of almost a year, China’s Ping An Insurance has been granted regulatory approval to purchase US firm TPG’s 16.76 percent stake in Shenzhen Development Bank (SDB).

Hong Kong-listed Ping An issued a statement on Wednesday confirming it had been granted approval by the China Regulatory Securities Commission (CSRC) to purchase TPG’s holding of 520.5 million shares in SDB in exchange for some 299 million newly issued Ping An shares. The transaction will see TPG fully exit its stake in SDB, and become a 4 percent shareholder in Ping An.

Based on Ping An’s latest share price of HK$62.6, TPG’s stake in the Chinese insurance giant will be worth around US$2.4 billion. Reports on the size of TPG’s initial investment in SDB differ, pitching it between $145 million and $300 million. However, even with an initial investment of $300 million, the firm stands to make returns of around 8x at divestment. TPG’s holding of Ping An shares will not be subject to a lock up period.

TPG first invested in SDB in 2004 via its then Asian affiliate Newbridge Capital, which was brought under the TPG umbrella in 2006. As the first ever sale of a controlling stake in a Chinese bank to a foreigner, the deal met with opposition when it was first tabled in 2002.

At that time, Chinese stakeholders in the bank allegedly tried to sell their shares to Taiwanese company Chinatrust Financial. The private equity firm then filed suit against Chinatrust Commercial Bank, accusing the Taiwan bank of interfering with the firm’s purchase plans. The dispute was eventually resolved and the deal finally went through in 2004.

Since then, TPG has turned the previously poorly performing bank’s fortunes around, increasing its assets by more than three times and reducing its bad loan ratio from 11.4 percent to 0.6 percent during the period of its investment, according to a report in the Financial Times.

“The bank was barely profitable five years ago and last year it earned $740m,” TPG partner Shan Weijian told the newspaper.

Ping An, which is already a 4.68 percent shareholder in SDB, struck an agreement with TPG to purchase the firm’s stake in June last year. The two firms then had to wait for approval from various regulatory bodies, including CSRC, China Regulatory Insurance Commission, China Banking Regulatory Commission, and China’s Ministry of Commerce.

Ping An is still waiting for approval on its separate application to purchase a further 370 million to 585 million of new SDB shares. According to the Financial Times, the insurance company plans to take its stake in the bank up to around 30 percent.