Warburg Pincus will invest close to US$700 million in China Huarong Asset Management, 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 per cent stake that the mainland's biggest bad-loan manager sold to a group of investors for 14.5 billion yuan (HK$18.2 billion), said one of the people, who asked not to be identified because it is private.
Rising loan delinquencies in the mainland 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 US Treasury secretary Tim Geithner, raised US$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, said yesterday. "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.
Huarong said last week it sold a stake to eight investors including Goldman Sachs Group and Malaysian sovereign fund Khazanah Nasional.
They were joined by domestic buyers China Life Insurance (Group), Fosun International, China International Capital, Cofco and a unit of Citic Securities.
The Beijing-based company plans to conduct an initial public offering in Hong Kong before the end of next year, chairman Lai Xiaomin said recently.
Overseas private-equity firms have been involved in US$10.9 billion of mainland acquisitions so far in 2014, more than eight times that of the year-ago period. KKR agreed last month to acquire a minority stake in Fujian Sunner Development, the nation's largest chicken breeder and processor, for about US$400 million.
Warburg Pincus' investment will be the biggest by an overseas private-equity firm in the mainland's financial industry, surpassing Carlyle Group's US$410 million stake in China Pacific Insurance Group in 2005.
The purchase of the Huarong stake is Warburg Pincus' largest single investment in the mainland, it said.
"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.
Huarong is considering buying the bad assets of companies outside the financial industry, Lai said last week. It also has the opportunity to acquire non-performing loans from Chinese trust companies, said Erin Lee, a Shanghai-based analyst at Yuanta Securities Hong Kong.
Newbridge Capital, the former Asia unit of TPG Capital, paid about US$145 million for a Shenzhen Development Bank stake in 2004, becoming the first foreign investor to control a Chinese lender. Carlyle and Newbridge later sold their investments.
Shares of China Cinda Asset Management, another of the nation's four national asset-management companies, have risen 10.6 per cent since they began trading in December in Hong Kong. Cinda raised US$2.8 billion in its IPO.
Huarong was set up to manage bad assets from Industrial & Commercial Bank of China, the nation's largest lender.