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TPG's China bank stake may return to local hands

SHANGHAI/HONG KONG (Reuters) - Shenzhen Development Bank (SDB) 000001.SZ, China's first foreign investor-controlled lender, will likely return to local ownership if U.S. private equity giant TPG Capital can unload its near 17 percent stake once a lock-up lapses next year.

TPG TPG.UL, which owns the stake via its Newbridge Capital fund, is the largest SDB shareholder, giving it effective control of a bank with a market value of around $6.8 billion.

“Newbridge’s exit is just a matter of time. The only question is: who will be the buyer?” said Wu Yonggang, a banking analyst at Guotai Junan Securities Co in Shanghai.

China Development Bank emerged as a potential buyer of the stake, according to an Economic Observer report that said it was in talks to invest and possibly take control of SDB.

Shenzhen-based Ping An Insurance (Group) Co 601318.SS2318.HK dropped out of talks to take up TPG's stake in SDB late last year, sources have said, but the state-owned parents of mobile carrier China Mobile 0941.HK and oil producer CNOOC 0883.HK have shown interest in the bank.

Battered foreign banks, retreating from non-core holdings, are not in the mix of would-be buyers, analysts have said.

Beijing-headquartered CDB said in a statement this week it “had not made any arrangement to acquire SDB,” while SDB, in a stock filing, said it had held no merger talks with CDB.

COMMERCIAL AMBITIONS

But a source familiar with the situation told Reuters this week CDB was studying potential Chinese bank targets, including SDB, for a possible acquisition or strategic investment.

China Development Bank, which is evolving from a policy bank into a commercial lender, is keen to acquire expertise, a new source of funding and a branch network, all of which Shenzhen Development Bank would deliver.

“We believe SDB is the best acquisition target among listed Chinese lenders,” said Jin Lin, analyst at Everbright Securities.

TPG, which in 2004 paid $155 million for its original SDB stake of nearly 18 percent, is keen to cash out of its holding under the typical 3-5 year life cycle of a private equity investment, said sources with knowledge of the matter.

DIFFICULT MARKET

Given the tough market environment, TPG is expected to start looking for buyers of its SDB stake as soon as it can.

“TPG can’t officially hire an adviser and tell everyone it’s going to find a buyer for SDB, because this will annoy both SDB and regulators,” one of the sources said. “But TPG has been privately in contact with many different parties regarding their interest in SDB in the past few months.”

The sources declined to be identified due to the sensitive nature of the deal. TPG declined to comment.

In November, SDB Chairman Frank Newman, a former deputy U.S. Treasury secretary, told Chinese media he believed TPG would eventually sell its holding, but gave no timeframe.

“We have constantly been in talks with other institutions on possible strategic cooperation,” SDB said on Wednesday. A spokeswoman for SDB declined to comment further.

Shenzhen Development Bank has been thwarted in earlier efforts to bring in big new investors.

In late 2005, General Electric's GE.N consumer finance arm agreed to pay $100 million for a 7.3 percent stake in a deal initiated by TPG that later failed to win Beijing's approval.

In late 2007, the bank said it would raise 4.22 billion yuan ($617 million) by selling 120 million shares to Baosteel Group, China’s biggest steel maker. But nine months later, that deal was dropped after SDB’s share price plunged.

Editing by Tony Munroe & Ian Geoghegan

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