An exciting trend is building momentum on China’s private equity scene, with a new generation of more entrepreneurial firms taking shape to compete on the global stage with traditional giants like Carlyle (Nasdaq: CG), KKR and TPG. One of the most active of those firms is the privately owned Fosun, which has become a regular headline maker due to its recent string of global acquisitions. Now the company is in the news once more, with word that it may soon become one of only a handful of companies in China to get a license to operate a private bank. In other private equity news, the highly anticipated launch of a major new player with strong ties to Shanghai’s financial community has finally come with the formal debut of China Minsheng Investment Corp (CMIC).
It’s probably not a coincidence that both of these stories revolve around Shanghai-based companies, since the city is already China’s financial center and is also a hotbed for this kind of entrepreneurial financial activity. By comparison, many of China’s stodgier, older private equity companies that previously dominated the sector are based in Beijing and have strong government ties. Those include sovereign wealth fund China Investment Corp and Citic Capital, the investment unit of the massive state-owned Citic Group conglomerate.
We’ll start our review of the latest Shanghai private equity news with the formal launch ceremony for CMIC on Thursday. The new firm has strong ties to the locally based Minsheng Bank (HKEx: 1988; Shanghai: 600016), China’s first bank funded with purely private money. Minsheng Bank’s former chairman Dong recently resigned that position to become CMIC’s new chairman. (Chinese article)
CMIC will have a hefty 50 billion yuan ($8.1 billion) to invest, and is backed by 59 private stakeholders. Word of CMIC’s establishment first leaked out in April, and subsequent reports indicated that new energy would be one of its focus areas. (previous post) Other focuses will include iron and steel, mining, real estate and aviation. The company certainly has some strong people working for it, and its government connections could help it to win some lucrative deals domestically from the start. I expect we’ll also see it make 1 or 2 attempts at big global M&A in its first year, though it may take a little longer to close its first deal.
Next let’s look at the latest news on Fosun, which has a longer track record that includes a growing number of major overseas purchases over the last year through its private equity arm, Fosun International (HKEx: 656). The latest reports say Fosun will be one of the winners when Beijing awards its second batch of private banking licenses in the near future. (Chinese article) That move is part of a broader government drive to pump more private money and entrepreneurial spirit into sectors now dominated by state-run firms.
China awarded its first 3 private banking licenses last month, with Internet giant Tencent (HKEx: 700) as one of the recipients. (previous post) E-commerce leader Alibaba has also applied for a private banking license. There’s not much more news in the latest reports, except for the insider angle that Fosun is no longer applying for the license in partnership with Junyao Group, another major private Shanghai conglomerate.
Fosun certainly seems like a good choice to receive one of these new licenses, since it has lots of money to quickly capitalize a new bank, and could even draw on funds from its private equity operation. Fosun also has strong experience in the financial industry, which should give it an advantage over newer companies like Tencent and Alibaba. With those advantages, I would expect to see Fosun quickly set up its bank after getting the license, with initial capitalization in the $1-2 billion range.
Bottom line: The new CMIC will become a major player in the domestic private equity market in the next 1-2 years, while Fosun will quickly set up a private bank this year after getting a license.