US banking giant JP Morgan confirmed that it will be holding a majority equity stake in a Chinese asset management joint venture. The company received the stake in a recent auction.
JP Morgan’s foothold in China
While the US and China relationship is rocky, JP Morgan is making new strides in the giant Asian economy. By becoming a majority partner in the Chinese asset management joint venture, the bank has become the first foreign firm to gaining control of onshore funds businesses established under the new regulatory regime.
The company bought a 2% stake at the Shanghai United Assets and Equity Exchange on Friday. The documents from the exchange on Friday didn’t reveal the identity of the buyer but sources confirmed that JP Morgan was the sole bidder in the process.
Interestingly, the firm already holds a 49% stake in the JV, China International Fund Management (CIFM) which hasn’t received regulatory approval yet. Asia Pacific CEO of the bank, Dan Watkins commented on the deal, saying,
“We are looking forward to the next steps to proceed with this acquisition, working closely with our joint venture partners. Once completed, the deal will be contingent on the approval of regulators in the U.S. and China.”
The acquisition of stake won’t be finalized until the China Securities Regulatory Commission (CSRC) Greenlights it. The Chinese Ministry of Commerce will also have to change the business registration license of the JV to better signify its majority foreign ownership.
Rule changes help JP Morgan
The bank’s bid to become the majority stakeholder in the JV was supported by a change in rules by the Chinese authorities in 2017. Now foreign asset managers are allowed to own over 51% of their mutual fund ventures. Beijing earlier planned to remove ownership caps from these ventures by 2021 but now it plans to remove the cap in 2020.
The American bank hasn’t commented on the timeframe within which it expects to receive approval from Chinese regulators to operate as a majority stakeholder. China has a $5.3 trillion market for the bank to explore if it gets regulatory approval for the deal.
The 2% stake it bought was previously owned by Shanghai International Trust, its local partner. According to the Financial Times, the seller’s minimum bid of $34.2 million was at a 33% premium of the NAV provided by an external third party. The bank bought it for $54 million according to filings on the exchange.