Landmark deal in China for Newbridge

The San Francisco firm strikes a deal with Shenzhen Development Bank, marking China’s first-ever sale to a foreigner of a controlling stake in a state-owned bank.

After about two years of negotiations, private equity house Newbridge Capital has agreed to pay yuan 1.2 billion ($145 million, €188 million) for a controlling interest in China’s Shenzhen Development Bank.

The San Francisco firm is buying 18 percent of the bank from four government shareholders and will appoint the bank chairman. Newbridge will be the first foreign investor to control a Chinese bank. Shenzhen Bank, which is the smallest of China’s five publicly traded banks, is reportedly raising money to expand lending.

Newbridge originally began to woo Shenzen in September 2002, but the negotiations faltered when Chinese stakeholders allegedly tried to sell their shares to Taiwan company Chinatrust Financial Holding. In May 2003, Newbridge filed suit against Chinatrust Commercial Bank, accusing the Taiwan bank of ‘maliciously interfered’ with the firm’s purchase plans. The dispute has since been resolved.

The deal anticipates an increase in nationwide lending as Chinese consumers continue to buy more cars and homes. Many foreign financial players have also been acquiring strategic holding in China’s banks – long held to be outdated and behind their Western counterparts – before the government’s full opening of the banking sector to foreign competition in 2006.

Newbridge, founded in 1994 by US giant Texas Pacific Group and San Francisco-based Blum Capital Partners, formerly Richard C. Blum and Associates, is no stranger to the Chinese banking market. In March, the firm also acquired nearly a 5 percent stake in China Minsheng Banking Corp., the country’s first and largest privately held lending institution.

In November, Newbridge joined a consortium of investors in acquiring  Japan Telecom for ¥32.5 billion (€241 million, $295 million) in equity, making it the largest leveraged buyout on record in the country. Last month, Ripplewood Holdings, which held 51 percent of Japan Telecom, sold the company to Japanese computer hardware and software group Softbank for ¥143.3 billion (€1.06 billion, $1.3 billion).

In 1999, Newbridge paid $416 million for a 51 percent stake in Korea First Bank after another long negotiation fraught with delays. The firm lost its majority holding Korea Deposit Insurance Corp., which exercised warrants to increase its stake in the bank to 51.4% from 49%.