Warburg Said to Seal Biggest Foreign Private Equity Deal in China Finance

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Timothy Geithner, President of Warburg Pincus LLC and former U.S. Treasury Secretary. Close

Timothy Geithner, President of Warburg Pincus LLC and former U.S. Treasury Secretary.

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Photographer: Chip Somodevilla/Getty Images

Timothy Geithner, President of Warburg Pincus LLC and former U.S. Treasury Secretary.

Warburg Pincus LLC will invest close to $700 million in China Huarong Asset Management Co., people with knowledge of the matter said, in the biggest investment in the nation’s financial industry by a foreign buyout firm.

Warburg Pincus bought the largest portion of a 21 percent stake that China’s biggest bad-loan manager sold to a group of investors for 14.5 billion yuan ($2.4 billion), said one of the people, who asked not to be identified as the matter is private.

Rising loan delinquencies in China are adding to opportunities for the country’s asset management companies, set up in 1999 to buy bad debt from state lenders. Warburg Pincus, whose president is former U.S. Treasury Secretary Tim Geithner, finished raising $11.2 billion last year for its most recent private-equity fund.

“Huarong is attracting interest because it is one of the largest AMCs in China,” Ming Tan, a Hong Kong-based analyst at Jefferies LLC, said today by e-mail. “It’s getting rarer to find such large deals to invest in, especially at a pre-IPO stage where the valuation is more attractive and there’s a clear exit timing.”

Li Mingxia, a Beijing-based spokeswoman for Warburg Pincus, declined to comment on the investment amount.

Photographer: Tomohiro Ohsumi/Bloomberg

Lai Xiaomin, chairman of China Huarong Asset Management Co. Close

Lai Xiaomin, chairman of China Huarong Asset Management Co.

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Photographer: Tomohiro Ohsumi/Bloomberg

Lai Xiaomin, chairman of China Huarong Asset Management Co.

Huarong said last week it sold a stake to eight investors including Goldman Sachs Group Inc. and Malaysian sovereign fund Khazanah Nasional Bhd. They were joined by domestic buyers China Life Insurance (Group) Co., Fosun International Ltd., China International Capital Corp., COFCO Corp. and a unit of Citic Securities Co.

Breeding Chickens

The Beijing-based company plans to conduct an initial public offering in Hong Kong before the end of next year, Chairman Lai Xiaomin said at an Aug. 28 briefing in Beijing.

Overseas private-equity firms have been involved in $10.9 billion of acquisitions in China so far in 2014, more than eight times the amount for the year-ago period, data compiled by Bloomberg show. KKR & Co. agreed last month to acquire a minority stake in Fujian Sunner Development Co., the nation’s largest chicken breeder and processor, for about $400 million.

Warburg Pincus’s investment in Huarong will be the biggest by an overseas private-equity firm in the country’s financial industry, surpassing Carlyle Group LP’s purchase of a $410 million stake in China Pacific Insurance Group Co. in 2005, data compiled by Bloomberg show.

Trust Assets

The purchase of the Huarong stake is Warburg Pincus’ largest single investment in China, the private-equity firm said in an e-mailed statement to Bloomberg News.

“The diversified financial channels and healthy debt structure of China Huarong provides itself stable and low-cost capital, laying a solid foundation for achieving sustainable profit growth,” Warburg Pincus said in the statement.

Huarong is considering buying bad assets of companies outside the financial industry, Chairman Lai said last week. It also has the opportunity to acquire non-performing loans from Chinese trust companies, Erin Lee, a Shanghai-based analyst at Yuanta Securities Hong Kong Ltd., said by phone today.

Newbridge Capital LLC, the former Asia unit of TPG Capital, paid about $145 million for a Shenzhen Development Bank Co. stake in 2004, becoming the first foreign investor to control a Chinese lender. Both Carlyle and Newbridge later sold their entire investments.

Car Rental

Shares of China Cinda Asset Management Co., another of the nation’s four national asset-management companies, have risen 10.6 percent since they began trading in December in Hong Kong. Cinda raised $2.8 billion in its IPO, according to data compiled by Bloomberg.

Warburg Pincus invested $200 million in China Auto Rental Holdings Inc., the country’s biggest car-rental provider, in July 2012. The firm said last month it partnered with a Baosteel Metal Co. unit to acquire 3 billion yuan of industrial gas assets.

Huarong was set up to manage bad assets from Industrial & Commercial Bank of China Ltd., the nation’s largest lender, as the government cleaned up a financial system on the brink of bankruptcy.

To contact the reporters on this story: Cathy Chan in Hong Kong at kchan14@bloomberg.net; Jonathan Browning in Hong Kong at jbrowning9@bloomberg.net

To contact the editors responsible for this story: Philip Lagerkranser at lagerkranser@bloomberg.net; Chitra Somayaji at csomayaji@bloomberg.net Ben Scent, Paul Panckhurst

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