So it appears the
wait for UBS is over and its US$212 million bid for 20% – and
management control – of brokerage Beijing Securities has been approved.
The big question is whether this means the pipes have finally been
unblocked and we’ll see foreign investment into the financial sector
flow through like the good ol’ days of 2005.
The answer is who
knows and, given the severe bout of second thoughts with which leftwing
opponents to privatization appear to have infected the Chinese
leadership, decisions are likely to be slow, careful and on a
case-by-case basis. It’s no secret that Chinese brokerages are badly in
need of help – just look at their balance sheets – so a logical
assumption would be that the other investment banks will gradually be
allowed to buy stakes in them.
The Citigroup-led consortium’s
bid for 80% of Guangdong Development Bank is more complicated. Like
most of the older banks in the region, it is in dire straits and so a
big smile and a wad of greenbacks (perhaps make that a mountain) would
normally be welcomed with open arms. But give Citigroup GDB and HSBC
will intensify its lobbying for 40% of Bank of Communications. And then
Management control is the extra strawberry on top of the sundae – nice if you can get it. Newbridge
Capital may have management control of Shenzhen Development Bank but,
like the UBS Beijing Securities deal, this comes on top of a minority
stake. This appears to water down the precedent somewhat.
what of precedents? Carlyle’s bid to takeover construction equipment
producer Xugong (unlike the financial sector, there are no buyy-out
barriers in construction) has apparently become stuck in a rut due to
doubts about selling to a private equity firm with a tendancy to buy in
and then cash out. But didn’t Newbridge Capital do exactly the same
thing with Korea First bank?
Buying a stake in a Chinese firm has
always involved navigating through some particularly misty waters. The
current climate of antagonism towards foreign buyouts only adds to this.