Efforts to attract more private capital into China's sprawling state-owned enterprises gathered pace on Thursday when China Huarong Asset Management sold a 21% stake to eight strategic investors for Rmb14.5 billion ($2.4 billion).
China's largest bad-debt manager sold the stake to Goldman Sachs, Malaysian sovereign fund Khazanah, Warburg Pincus, China Life Insurance, Fosun International, CICC, Citic Securities International and Cofco, ahead of an expected initial public offering of shares. All are new investors with the exception of China Life Insurance, which held a 1.94% stake prior to the sale.
The size of each investor's investment was not disclosed but one source familiar with the matter indicated that private equity firm Warburg Pincus had snapped up the biggest stake, followed by Citic Securities International and Khazanah. CICC, Cofco and Fosun put in roughly equal amounts while Goldman Sachs' investment was the smallest, the source said.
According to media reports citing comments made by China Huarong Asset Management's chairman Lai Xiaomin at a briefing, the company's planned IPO in Hong Kong is earmarked for next year.
Before then, China Huarong is seeking help from each of its new partners to develop its business and improve the way it is governed. "China Huarong is bringing in external capital and introducing corporate governance, consistent with what the government is trying to do with its larger financial institutions," the source said.
The sale process started late last year and about 60 strategic investors were invited. This long list was whittled down to the final eight after two rounds.
Warburg Pincus' investment is a rare instance of a foreign private equity firm securing a direct stake in a Chinese financial institution, a sector that China's banking regulator closely watches. The investment in China Huarong is Warburg Pincus' largest FIG investment in China.
US private equity firm Carlyle previously took a stake in another bad debt manager, Cinda Asset Management, but that was indirectly, through a swap arrangement with UBS. That arrangement came to light last year, in the months before Cinda Asset Management listed.
Khazanah's presence is interesting too as the sovereign wealth fund has been stepping up its presence in China investments and was one of the cornerstone investors for Galaxy Securities' Hong Kong IPO last year.
Ostensibly missing as a strategic investor is Temasek Holdings but Singapore's state investment holding company has already invested heavily in Chinese banks and has recently pared back some of its investments, having sold out of its remaining stake in New China Life Insurance in July.
China Huarong is one of four asset management companies established by the Ministry of Finance in 1999 to acquire and repackage bad loans from Chinese financial institutions. The four companies had exclusive mandates and helped the Chinese government remove bad loans from China's big four commercial banks prior to listing.
China Huarong has brought in strategic investors at a time when bad loans in China have picked up amid an economic slowdown.
Citi advised China Huarong, JP Morgan advised Warburg Pincus and Bank of America Merrill Lynch advised Khazanah. A spokeswoman for Goldman Sachs declined to comment on the size of its investment.