M&A

Enter the big guns

Minsheng Bank’s shareholders want to create a new financial giant

Shi Yuzhu w

Shi Yuzhu: a CMI backer

In 1799 the controversial US politician Aaron Burr obtained a state charter for a water company called the Manhattan Company. It included a provision allowing the waterworks to employ excess capital in any activity “not inconsistent with the Constitution and laws of the United States”.

Burr used that provision to start a bank. The fledgling lender would evolve into today’s JPMorgan Chase via the merger of more than 1,200 predecessor institutions.

In China a group of private-sector capitalists has just created a new financial group – and observers are wondering what it too might become.

Known as China Minsheng Investment (CMI), the group is a private company jointly owned by many of the same shareholders that backed China Minsheng Bank (CMB). The plan is to take advantage of new investment opportunities made possible by policy changes recently announced or mooted and designed to reduce the influence of state capitalism.

News of CMI’s launch first broke last month when Shi Yuzhu, the founder of online game developer Giant Interactive and a major shareholder of CMB, said that Giant holds 2% of the new venture, having invested Rmb1 billion ($162 million).

That means that CMI’s registered capital amounts to Rmb50 billion. Shi also posted a picture of five of CMI’s board members, which includes the chairman of China Oceanwide Lu Zhiqiang (see WiC50 for a profile on Lu, whose conglomerate indirectly controls computer giant Lenovo) plus CMB’s chairman Dong Wenbiao.

Dong told journalists last August that he was drafting a plan to establish a new investment firm focusiing on domestic infrastructure. But few in the media had expected that new entity he envisaged would be capitalised at such scale, or be backed by so many of the titans of the Chinese private sector.

CMI’s founding shareholders include 50 entrepreneurs or business owners of leading firms. Most have a connection with CMB, which was set up in 1996 by business bosses from the semi-official All China Federation of Industry and Commerce. (CMB is the only banking heavyweight in which the state doesn’t own a majority stake.)

With backing from CMB and its powerful shareholders, CMI will put together an investment fund that is worth at least Rmb300 billion, the Economic Observer predicts. It will focus on industries likely to go through major restructuring, especially steel, shipbuilding and solar power, which are plagued by overcapacity. CMB is a major creditor of many of the private firms operating in these sectors, the newspaper says, but under local rules it cannot swap debt for equity in non-financial industries.

Ergo CMI. “Many people see CMI as the asset management company to clear up CMB’s bad loans,” CBN posits.

Century Weekly has a different view – that CMI’s goal is to take over CMB in the future also. “Dong (CMB’s chairman) wants to build a financial and industrial empire that controls not only CMB but also other companies invested in by the bank’s top shareholders, including Minsheng Financial Leasing and Minsheng E-Commerce,” sources told the magazine.

No matter what lies ahead, the Economic Observer thinks that CMI’s investment in troubled industries will be welcomed by the central government, especially in consolidating surplus production.

The newspaper also expects real estate to take on a key role in CMI’s calculations. Some of the troubled steel plants will be redeveloped as property plays, it believes. It reckons CMI might even be likened to a private sector version of CIC, drawing comparison with the sovereign wealth fund responsible for investing China’s foreign reserves in overseas assets.

Local journalists expect to hear more about CMI’s dealmaking in the coming months…


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