China's booming trust sector attracts M&A frenzy
Trust structures offer foreign firms a new way to access assets in China and are a favoured vehicle for investing in infrastructure and property.
Once ridden with fraud and scandal, the Chinese trust sector has had a strong revival since the Chinese Banking Regulatory Commission (CBRC) revamped regulations in January.
The trust platform ôcan pretty much package any kind of assetsö, with little limitation on investor participation or deal structure, according to Michael McCormack, executive director of Z-Ben Advisors in Shanghai. Trusts are gaining popularity among high-net-worth individuals and institutional investors who want off balance sheet options and exposure to higher octane plays.
Some popular uses include structuring these as quasi-hedge funds and private equity investments. As of end-February, there were 54 trust companies in China, running total assets under management of Rmb903 billion ($132 billion), a small sum compared to the Rmb3.1 trillion ($453 billion) in local fund management assets. The industry is tipped to further expand, however, and Z-Ben says the industry is quickly monopolising real estate investment trusts (Reits) and asset securitisation trades.
Now the idea seems to be catching on among foreign investors.
For foreign houses hungry for more China play, but short on QFII quota, the trust platform offers an attractive fluid structure that can help them get around the mainlandÆs tightening capital controls. In particular, the platforms can give them easy access to invest in local infrastructure and property projects, given their past as syndicated loan agencies to most municipal governments.
This year in particular has attracted a flurry of M&A deals with global banks and asset management houses buying their way into China.
To date, Barclays, Ashmore Investment Management and Nab Capital already have deals with local trusts approved by the CBRC. Others said to be in the process of negotiation include Mitsubishi, Morgan Stanley, Credit Suisse, HSBC and RBS.
The latest firm in that pipeline is Macquarie û an active investor in Chinese real estate since 1995. However, that position has changed after deals in Shanghai and Sanya failed last year amid tightening capital controls and legislative measures to deter foreign hot money from going into local property.
Macquarie, as the worldÆs largest private owner of infrastructure, is said to have drawn up a shopping list of immediate targets that include the Kunming airport, toll roads and a water utility in the south-western province of Yunan. For the longer run, it is keen to gain access to local private equity projects in sectors including consumer plays, agriculture, telecoms, logistics and renewable energy.
The trust platform will give it a battery of renminbi pellets to make deals onshore without being affected by tightening in local financings. To that end, it is seeking regulatory approval to acquire approximately 20% in Kunming Trust with Beijing Sanjili Energy, which will hold the remaining 80% stake. Kunming Trust is currently under the control of the local municipal government and the Ministry of Finance. Macquarie declined to comment.
Potential pairs in the works:
- Morgan Stanley with Hangzhou Industrial & Commercial Trust
- RBS with Suzhou Trust
- Mitsubishi with CITIC Trust
- Merrill Lynch with Western Trust & Investment
- Credit Suisse with Jiangsu International Trust
For an in-depth review of ChinaÆs trust sector, see the September issue of AsianInvestor magazine.
The trust platform ôcan pretty much package any kind of assetsö, with little limitation on investor participation or deal structure, according to Michael McCormack, executive director of Z-Ben Advisors in Shanghai. Trusts are gaining popularity among high-net-worth individuals and institutional investors who want off balance sheet options and exposure to higher octane plays.
Some popular uses include structuring these as quasi-hedge funds and private equity investments. As of end-February, there were 54 trust companies in China, running total assets under management of Rmb903 billion ($132 billion), a small sum compared to the Rmb3.1 trillion ($453 billion) in local fund management assets. The industry is tipped to further expand, however, and Z-Ben says the industry is quickly monopolising real estate investment trusts (Reits) and asset securitisation trades.
Now the idea seems to be catching on among foreign investors.
For foreign houses hungry for more China play, but short on QFII quota, the trust platform offers an attractive fluid structure that can help them get around the mainlandÆs tightening capital controls. In particular, the platforms can give them easy access to invest in local infrastructure and property projects, given their past as syndicated loan agencies to most municipal governments.
This year in particular has attracted a flurry of M&A deals with global banks and asset management houses buying their way into China.
To date, Barclays, Ashmore Investment Management and Nab Capital already have deals with local trusts approved by the CBRC. Others said to be in the process of negotiation include Mitsubishi, Morgan Stanley, Credit Suisse, HSBC and RBS.
The latest firm in that pipeline is Macquarie û an active investor in Chinese real estate since 1995. However, that position has changed after deals in Shanghai and Sanya failed last year amid tightening capital controls and legislative measures to deter foreign hot money from going into local property.
Macquarie, as the worldÆs largest private owner of infrastructure, is said to have drawn up a shopping list of immediate targets that include the Kunming airport, toll roads and a water utility in the south-western province of Yunan. For the longer run, it is keen to gain access to local private equity projects in sectors including consumer plays, agriculture, telecoms, logistics and renewable energy.
The trust platform will give it a battery of renminbi pellets to make deals onshore without being affected by tightening in local financings. To that end, it is seeking regulatory approval to acquire approximately 20% in Kunming Trust with Beijing Sanjili Energy, which will hold the remaining 80% stake. Kunming Trust is currently under the control of the local municipal government and the Ministry of Finance. Macquarie declined to comment.
Potential pairs in the works:
- Morgan Stanley with Hangzhou Industrial & Commercial Trust
- RBS with Suzhou Trust
- Mitsubishi with CITIC Trust
- Merrill Lynch with Western Trust & Investment
- Credit Suisse with Jiangsu International Trust
For an in-depth review of ChinaÆs trust sector, see the September issue of AsianInvestor magazine.
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