Date: April 7, 2011 Source: International Finance News
IB has successfully concluded the acquisition of Union Trust Limited (hereinafter referred to as “Union Trust”). Union Trust released an announcement on April 6, stating that IB had been given the go-ahead to acquire a total of 51.18% of Union Trust's shares, including 15.69% from New Hope Group, 25.49% from Sichuan South Hope Enterprises Co., Ltd. and 10% from Fujian Overseas Chinese Investment Co., Ltd.
The business scope of a trust company covers loans, inter-bank borrowings, finance and leasing, etc. Trust companies can lend a helping hand to banks. Therefore, banks often target trust companies as a business priority after branching into fields such as funds, insurance and securities, etc.
IB has successfully concluded the acquisition of Union Trust Limited (hereinafter referred to as “Union Trust”). Union Trust released an announcement on April 6, stating that IB had been given the go-ahead to acquire a total of 51.18% of Union Trust's shares, including 15.69% from New Hope Group, 25.49% from Sichuan South Hope Enterprises Co., Ltd. and 10% from Fujian Overseas Chinese Investment Co., Ltd.
After the acquisition is concluded, IB will become the controlling shareholder of Union Trust. IB's capital contribution to Union Trust is RMB 261 million, accounting for 51.18% of Union Trust's total shares. The capital contribution of Fujian Overseas Chinese Investment Co., Ltd. is RMB 112 million, accounting for 21.96% of Union Trust's total shares. The capital contribution of National Australia Bank is RMB 102 million, accounting for 20% of Union Trust's total shares. The capital contribution of Wing On Asset Management Limited is RMB 25 million, accounting for 4.9% of Union Trust's total shares. The capital contribution of Nanping Investment Guarantee Center is RMB 10 million, accounting for 1.96% of Union Trust's total shares.
Acceleration of Comprehensive Operation
As a matter of fact it's by no means easy to obtain the approval of China Banking Regulatory Commission for the equity restruct uring of Union Trust. It's learnt that of all eight trust companies originally under the jurisdiction of Fujian Provincial Government, Union Trust is the only one to be re-registered following a checkup and rectification. Due to flaws in corporate governance and historical problems, the business operation of Union Trust was almost at a standstill at the end of 2009. However, in September 2009 when the negotiation regarding a stock transfer was finished, IB decided to save Union Trust from collapse following the entrustment of the major shareholders of Union Trust.
After successfully renewing its financial license, Union Trust gradually got back on its feet. According to the unaudited data, the total stock size of Union Trust's trust projects in 2010 exceeded RMB 31 billion, up by 198% as compared with 2009, and its total revenue exceeded RMB 200 million, up by 130% as compared with the previous year. Its net profit reached RMB 70 million in 2010 which is a growth of 86% over the previous year.
IB was outspoken about the purpose of the acquisition by describing the move as a very important strategic step to accelerate its comprehensive operations and to improve the capabilities of its comprehensive financial services. It's understood that after the acquisition, IB's comprehensive operations are likely to be accelerated. At present, IB holds the following non-banking financial licenses: trust, leasing and futures.
According to IB's annual report, IB's net profit in 2010 was RMB 18.521 billion, up by 39.44% over the same period last year; IB's rate of return on total assets and net assets in 2010 was 1.17% and 24.66% respectively, keeping ahead of other domestic banks. Last year, IB's proposed acquisition of Union Trust was approved by the State Council, and its fully-owned subsidiary. Industrial Bank Financial Leasing Co., Ltd., successfully started operations and made a profit in its first year.
Highly Favored Trust License
In fact, banks are always full of interest in scarce trust licenses. According to released data, prior to IB's move, Bank of Communications acquired a trust company in Hubei Province and founded Bank of Communications International Trust Co., Ltd., which is the first bank-invested trust company in China . China Construction Bank also successfully acquired Hefei Xingtai Trust Co., Ltd. and renamed it CCB Trust Co., Ltd. China Merchants Bank also successfully allied with The Trust Investment Corporation of Tibet Autonomous Region.
In fact, the attitude of the banking supervising authority towards the number of trust licenses is to reserve one or two licenses for each province, and no new trust licenses will be issued, which means that a high price must be paid for the acquisition of a trust company.
According to analysts, the business scope of a trust company covers loans, inter-bank borrowings, finance and leasing, etc. Trust companies can lend a helping hand to banks. Therefore, banks often target trust companies as a business priority after branching into fields such as funds, insurance and securities, etc.
“The acquisition of trust companies by commercial banks is always mutually beneficial. A trust is by its nature a finance platform. The acquisition of trust companies by central SOEs or banks is merely intended to facilitate capital operation, particularly to reduce the cost of finance. Also, on the one hand, the acquisition of trust companies enables banks to expand their business scope and improve their overall capabilities; on the other hand, it will pave the way for cooperation between banks and trust companies. It's very likely that banks may engage in bank-trust cooperative businesses on their own in the future.” Xing Cheng, Executive Director of a Trust and Fund Institution affiliated to Renmin University of China, told the correspondent of International Finance News. For trust companies, banks are their solid backing.