February 11, 2011 Source: Securities Times Author: Zhu Zhongwei
Yesterday, Industrial Bank (IB) announced that for approximately RMB 852 million it had purchased a 51.18% shareholding in Union Trust Limited; completing the aquisition of the controlling share in Union Trust Limited. At this stage, IB became the third trust-holding-bank company after Bank of Communications and China Construction Bank. Why did IB choose to aquire Union Trust? What influence will the transaction have on both companies? Regarding the above questions, Tang Bin, a Director and Secretary of the Board of IB agreed to an interview with a reporter from the Securities Times.
Tang Bin introduced that, IB began to look for a suitable aquisition target troughout China as early as the begginign of 2008. In December that year, IB initiated contact with New Hope Group with regard to the aquisition of shares in Union Trust held by the group and its associated companies, including due diligence investigations and business negotiations, etc.
In August 2009, IB's Board of Directors formally approved the acquisition of the shareholding in Union Trust held by New Hope Group, Sichuan South Hope Enterprises Co., Ltd., and Fujian Overseas Chinese Investment Co., Ltd. totalling 51.18%.
However, the investment plan needed to be reported to the regulatory authorities for special approval, and considerable uncertainties existed regarding the contents and procedures of the transaction. In addition, the investment amount didn't reach the standard level requiring the disclosure of foreign investment contained in the Specific Provisions on Information Disclosure by Commercial Banks promulgated by the China Securities Regulatory Commission. As a result, IB submitted a special report to the Shanghai Stock Exchange applying for official publication of the transaction information following its approval by the regulatory authorities. Tang Bin indicated, “Meanwhile, we also promised not to disclose the secret during this period and required related insiders and transaction parties to abide by the provisions on the disclosure of information. This is why we kept silent when the rumor of IB's aquisition of Union Trust spread in the market”.
In September 2009, IB signed “Stock Rights Transfer Agreements” with New Hope Group, Sichuan South Hope Enterprises Co., Ltd., and Fujian Overseas Chinese Investment Co., Ltd. successively, and submitted relevant requests for instructions to the China Banking Regulatory Commission. In October, The Fujian Provincial Government also reported the “Request for Instructions from the Industrial Bank on the Acquisition and Controlling Share in Union Trust” to the State Council.
The year that followed, IB and Union Trust continued to further supplement relevant materials as required by the regulatory authorities. Finally, the bank received approval from the regulatory authorities, becoming the third trust-holding-bank company approved by the State Council, following on from Bank of Communications and China Construction Bank.
Integrating the Financial System in Western Straits
In recent years, Fujian has maintained a strong momentum in developing the Western Straits' economy. In May 2009, the State Council specially promulgated the “Opinions on Supporting Fujian Province to Accelerate the Construction of the Western Straits' Economic Zone”. In order to implement the “Opinions” and integrate the limited financial resources in the area in an effective way, Fujian Province also issued support documents committed to constructing an internal financial platform, including a bank, securities and trusts to serve the construction of Western Straits.
“The aquisition was decided under the backdrop of integrating the financial systems in the Western Straits”. Tang Bin introduced, “Senior Officials of Fujian Province realized that it depended on a strong and complete financial system in the Western Straits to achieve success in constructing and development the Western Straits Economic Zone. Not only would this require the effective support of various financial policies, but even more so the further improvement, matching, and integration of financial resources in the area. The province should take great efforts to build a system of financial institutions - banks, securities and trusts - featuring compatability, uniformity and concerted effort. IB's aquisition and controlling share of Union Trust would effectively help to integrate the financial resources of Fujian Province and drive the economic construction in Western Straits”.
It was just the right time for focusing on developing their main businesses - New Hope Group and its associated companies intended to transfer the Union Trust shares held by them - so, the two parties hit it off right away. Tang Bin said, “We can say that the combination of the strategic decision of Fujian Province to integrate the financial resources in the Western Straits, and the intention of New Hope Group to transfer their Union Trust shares, and many other factors, provided a rare chance for us”.
Building a Financial Flagship in the Western Straits
Considering the development of the trust sector in overseas developed countries, the sector mainly centralizes its trust fund investments over projects in three fields, infrastructure, real estate, and utilities, and becomes highly integrated into the banking industry in terms of business and organization. Therefore, this does not only conform to the development tendency of the world's trust industry to develop trusts using banks as a platform, but is also the objective requirements for construction in the Western Straits and especially to increase investment in infrastructure and utilities in the area.
Tang Bin indicated that IB had made great breakthroughs in serving the Western Straits and had launched the “ multi-billion, six major engineering projects” program in the Western Straits, including the “Pingtan Fast Track”, “Leading Partners”, and “Corridor Bridge Project”, etc.
Tang Bin introduced that, as the only large-to-medium state-owned holding bank with a head office in the Western Straits, IB had an extensive and sound business development foundation, possessed modern business management levels and operational support safeguard abilities, and boasted unique geographical and political advantages in undertaking financial cooperation with Taiwan. At the same time, the bank had already completed distrubuting its business nation-wide. Through aquiring Union Trust and developing the banking finance lease, IB would continue to consolidate the foundation for group development, then, build a financial flagship in the Western Straits.
Tang Bin indicated, “In reality, after aquiring Union Trust, the management team of IB has spent more than one year devoted to the governance and business management of the company. Now, there is already obviouse results”.
Yang Huahui, former President of IB's Hangzhou Branch and current Chairman of the Board of Union Trust, addressed that Union Trust was the only trust company out of the former eight trusts in Fujian Province (excluding Xiamen) that had been registered again after its clean-up and rectification. Due to defects in corporate governance and questions left over by its history, the business performance of the company has dropped sharply in recent years. By September 2009, all of its businesses were almost stagnant. As a result, the primary business indeces ranked it towards the tailend of the trust industry in China.
In order to change this situation as early as possible, after completing business negotiations on the transfer of share rights in September 2009, IB entrusted by the major shareholders of Union Trust, officially sent a management team to Union Trust focusing on improving its governance and business management.
Currently, Union Trust has established a good corporate governance structure and established a sound risk management and internal control mechanisms, achieving leaping development in terms of its business scale and economic benefits.
Since Union Trust's founding, it has undertaken 520 trust projects in total, and smoothly completed 370. All of the trust plans settled were honored on time or in advance, and the returns of all trust products matched or outperformed the expected yields - existing trust properties are in normal operation. It is estimated that in 2010 the stock value of the company's trust projects would break through RMB 31 billion, an increas of 190% compared with 2009; the total business revenue would go beyond RMB 200 million while the net profit would reach about RMB 70 million.