CIT Group buys out partners in mainland joint venture

PUBLISHED : Friday, 07 April, 2006, 12:00am
UPDATED : Friday, 07 April, 2006, 12:00am

Scenting a boom, commercial finance firm plans increased investment to broaden its presence in China

CIT Group, a Fortune 500 diversified finance company, has bought out its Chinese partners in a mainland joint venture in anticipation of a market boom.

The New York-based and listed consumer and commercial finance company planned to make 'a lot more significant investment' to broaden its China operations in the coming years, said Tom Hallman, CIT's vice-chairman for specialty finance.

'It's a good time for us to be more independent and be able to build our business,' Mr Hallman said. 'We want a much larger business in China.'

He declined to say how much CIT paid to acquire the 45 per cent equity interest in Newcourt Leasing Corp from two state-owned joint-venture partners - China Economic and Technology Information and China International Telecommunications Construction Corp.

Neither did he give the amount of future investments to expand staff in China.

CIT's vendor finance arm provides loans or leases to end-users in more than 30 countries for acquiring equipment from manufactures, distributors or wholesalers it partners with.

Newcourt was set up in 1998 when foreign players providing equipment leasing and vendor finance were required to team up with mainland firms.

Employing close to 50 people in its offices in Beijing, Shanghai and Guangzhou, it will be renamed CIT Finance & Leasing Corp and become one of just a handful of wholly foreign-owned leasing companies - including those run by GE Capital, Siemens, and Xerox - that have sprung up since last year due to China's market opening commitments to join the World Trade Organisation in 2001.

Total leasing volume, typically the purchase price of equipment, reached US$2.5 billion in China last year, about 1 per cent of equipment sales, according to Li Siming, general manager of CIT Finance & Leasing.

In mature markets such as the United States, the ratio was 20 per cent, Mr Hallman said.

In recent years, growth in leasing volume in China exceeded 40 per cent annually in the past four years, driven by multinational companies' investments in China and the 2008 Beijing Olympics, Mr Li said.

The potential market was even bigger and set for sustained, rapid growth because of equipment demand growth and greater awareness of vendor financing, Mr Hallman said.

While CIT's vendor finance clients in the mainland once consisted almost exclusively of mainland operations of multinational companies, large mainland state-owned enterprises and companies such as China Mobile and China Unicom now contribute 30 to 35 per cent of its assets, according to Mr Li.

Financing for purchases of technology equipment, including telecommunications and information technology equipment, account for about 25 per cent of CIT's assets in China.

The first firm to offer leases for medical diagnostic equipment in China, CIT also sees health care as an area for vendor finance growth.

Three years ago, major Chinese banks began extending loans to Newcourt without CIT's credit guarantee. The partners' exit would not affect CIT's ability to secure credit lines from mainland banks, Mr Li said.