Macquarie seeks 20 pct of China's Kunming Trust

Wed Jul 2, 2008 7:02am EDT

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By George Chen

SHANGHAI, July 2 (Reuters) - Australian bank Macquarie (MQG.AX) has applied to Chinese regulators to buy a nearly 20 percent stake in a trust company, in order to expand its corporate banking and wealth management services in China, sources with direct knowledge of the deal said on Wednesday.

Macquarie plans to buy just under 20 percent of Kunming International Trust Co, a small firm with several billion yuan

(several hundred million dollars) of assets under management and based in southwestern China's Yunnan province, said the sources.

The plan was recently submitted to the China Banking Regulatory Commission after Macquarie spent more than a year in negotiations with the trust firm, said the sources, who declined to be identified as they were not authorised to speak to the media.

A spokeswoman for the Macquarie group in Hong Kong declined to comment, while a representative for Kunming Trust could not be reached for comment.

"It's a small deal for Macquarie but it can offer a very good and important platform for Macquarie to do business in China," said one of the sources.

Macquarie is expected to hold management control and have the right to appoint senior executives at Kunming Trust, and it will work with other new domestic investors to restructure the firm, the sources said.

A foreign institution can hold no more than 20 percent of a Chinese trust company, while overseas investors can have a combined stake of up to 25 percent, according to Chinese rules.

CLEAN SLATE

Beijing has been moving since 2006 to bolster China's trust companies, which were hit over the past decade by a series of bankruptcies and scandals.

Kunming Trust, established in 1993, was ordered by China's central bank to carry out an internal overhaul after its operations ran into trouble, due partly to failed investments early this decade that involved the misuse of clients' assets, according to reports in China's official media.

Kunming Trust is currently controlled by the financial authority of the Kunming municipal government, which has agreed to clear the trust firm's debt, the sources said.

"Macquarie will get a fresh, clean slate with Kunming Trust and it is expected to win a new trust business licence soon, allowing it to expand its scope of business," said a second source.

Under Chinese rules, trust firms face fewer obstacles than most other financial institutions in making equity investments in a wide range of financial sectors, including insurance, securities broking, asset management and private equity.

Trust companies are also allowed to offer a variety of corporate banking services, including asset management and indirect fund-raising for domestic enterprises.

Royal Bank of Scotland Group Plc (RBS.L) has won approval from Chinese regulators to buy a nearly 20 percent stake in Suzhou Trust Co, industry sources told Reuters last week. (For details click [nSHA363372])

Earlier this year, Barclays Plc (BARC.L) and National Australia Bank Ltd (NAB.AX) also won Beijing's approval to buy into Chinese trust partners.

($1=6.858 Yuan)

(Editing by Edmund Klamann)

((george.chen@reuters.com; +86 21 6104 1795; Reuters Messaging: george.chen.reuters.com@reuters.net)) Keywords: MACQUARIE CHINA/TRUST

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