* Private equity fund to take up to 75 percent stake
* TPG sees opportunity to lend as SMEs seek capital
* Sri Lanka economy expected to grow 7.8 pct this year
(Adds quotes, context of economic expansion and lending
By Shihar Aneez and Stephen Aldred
COLOMBO/HONG KONG, Aug 14 TPG Capital Management
LP has agreed to purchase a majority stake in Sri Lanka's Union
Bank of Colombo Plc for $113 million in the country's
biggest buyout deal.
TPG, via its affiliate Culture Financial Holdings Ltd, will
take a stake of up to 75 percent in Union Bank through a
combination of primary and secondary shares and warrants, the
bank and the fund said on Thursday. The exercise of the warrants
would take the value of the deal to $117 million.
Sri Lanka's government is keen to develop the banking sector
to support growth in an economy emerging from the trauma of a
protracted civil war. The economy is expected to grow by 7.8
percent this year, faster than last year's 7.2 percent.
Puneet Bhatia, a partner and TPG's India country head, told
Reuters the private equity fund hopes to turn Union Bank into
one of Sri Lanka's top five banks.
Union Bank is the eighth-largest of Sri Lanka's 12 listed
banks and has a market capitalisation of around $67 million,
according to Thomson Reuters data.
TPG sees opportunities to lend in an underdeveloped banking
market as consumption rises and Sri Lanka looks to boost
tourism, infrastructure, manufacturing, agriculture and exports.
"The government's programmes are clearly mushrooming SMEs
(small and medium-sized enterprises), but first-generation
entrepreneurs find it hard to get capital and our experience
with banks in Asia shows that a small, community-based lender
can create a very strong financial institution," Bhatia said.
The buyout will boost Union Bank's Tier 1 capital, a measure
of financial strength, to enable it to meet the central bank's
minimum capital requirement of 10 billion rupees ($76.8 million)
before a Jan. 1, 2016 deadline.
TPG's experience in developing emerging-market banks was a
key part of winning government approval for the deal, Bhatia
The returns made from relatively small investments in banks
in emerging markets can be substantial for private equity funds.
Last year, TPG sold part of its stake in Indonesia's Bank
Tabungan Pensiunan Nasional Tbk PT to Japan's Sumitomo
Mitsui Banking Corp, putting it on course to earn more
than 10 times its initial investment made in 2008.
($1 = 130.1800 Sri Lankan rupees)
(Reporting by Shihar Aneez in COLOMBO and Stephen Aldred in
HONG KONG; Editing by Denny Thomas, Matt Driskill and Dale