Ping An's TPG move faces rising opposition

Opposition in China is building to a deal in which US private equity group TPG plans to sell its controlling stake in a Chinese bank to Ping An Insurance, the country's second-largest insurer, for a profit of more than 150 per cent.

Ping An plans to pay at least $1.68bn for TPG's 17 per cent controlling stake in Shenzhen Development Bank and buy up to $1.57bn in new shares from SDB to give it a combined stake of up to 30 per cent.

But the deal was not first cleared with all the regulatory bodies involved and will face serious opposition within China's opaque bureaucratic and political establishment, according to people familiar with the matter.

Without taking into account any leverage used by TPG, the US group stands to earn a profit of at least $1.02bn, a 154 per cent return on its original investment of about $660m, which has been made in several portions at different prices since 2004.

Chinese officials fear the perception they have sold state assets on the cheap. And, in the struggle between reformist and conservative elements in Beijing, the reformists, who support more foreign involvement in the financial system, are in a weakened position, according to three people familiar with the matter.

TPG, which invested in SDB through its subsidiary Newbridge, also has the option to take Ping An shares instead of cash.

According to the terms of the deal, that option would earn TPG a profit of $1.62bn, a mark-to-market return of nearly 250 per cent, based on Ping An's latest Hong Kong-traded share price.

People familiar with the political climate in Beijing said TPG was more likely to choose the share-swap option because officials would find it easier to accept the transaction if TPG retained a large stake in the Chinese financial sector.

Louis Cheung, Ping An's chief executive, said yesterday his company was hoping to ensure a "smooth exit" for TPG and that by choosing the share-swap option the company would retain "a very significant role in the Chinese financial industry".

"We are very confident that the subsequent stage of regulatory developments should be very positive," Mr Cheung said.

But in recent years, regulators have repeatedly blocked Ping An's ambitious expansion plans, including an enormous domestic capital-raising last year and an attempt to buy the asset management arm of Fortis, the defunct Belgo-Dutch financial group in which Ping An lost $3bn last year.

Frank Newman, SDB's TPG-appointed chairman, said yesterday Ping An had insisted that its plan to buy up to $1.57bn of new SDB shares be conditional on it securing the TPG stake.

TPG representatives refused to comment.

Source from : http://www.ft.com/cms/s/0/a403e6ee-5944-11de-80b3-00144feabdc0.html