MUFG buy would offer access to $300b mutual funds market

By Samuel Shen, Helen Ding and Jacqueline Wong (China Daily)
Updated: 2010-08-03 15:07
Large Medium Small

SHANGHAI - Mitsubishi UFJ Financial Group (MUFG) plans to buy BNP Paribas' stake in a Chinese fund venture for $50 million, giving Japan's biggest bank access to China's $300 billion mutual funds market, two sources with direct knowledge of the deal said on Monday.

The French bank and MUFG will submit plans involving the SYWG BNP Paribas Asset Management Co stake to China's securities regulator for approval this month, after a previous application was rejected due to minor technical issues, one of the sources said. The sources declined to be identified as they are not authorized to speak to the media.

After the sale, BNP Paribas would own only one fund license in China, enabling it to comply with Chinese rules that bar a foreign company from owning more than one fund venture. The deal would also allow MUFG to tap China's fast-rising demand for asset-management services.

"China's mutual funds market is nascent but rapidly growing as people get increasingly wealthy," said Wu Xianxing, an analyst at Haitong Securities Co in Shanghai.

"Deregulation is the big trend, so it makes sense for foreign companies to set up a foothold in this market."

MUFG secured the deal after outbidding about a dozen rivals including Japan's Nomura Holdings Inc and London-based Ashmore Group.

China's mutual fund assets totaled 2.1 trillion yuan ($310 billion) by the end of June, and the industry may triple in size to exceed $1 trillion over the next five years, according to Shanghai-based fund consultancy Z-Ben Advisors.

More than 30 foreign institutions, including JPMorgan, Credit Suisse and Morgan Stanley have formed fund ventures in China, while companies including Aberdeen Asset Management and T.Rowe Price are also seeking access to that market.

SYWG BNP Paribas was formed in 2004 between BNP Paribas and Chinese brokerage Shenyin & Wangguo Securities Co, which controls a 67 percent stake. The Shanghai-based fund venture has 10.4 billion yuan of assets under management (AUM) at the end of June, representing a 0.49 percent market share, a slump from its 0.9 percent market share at the end of 2009.

MUFG's purchase price of $50 million for a 33 percent stake represents a price/AUM ratio of about 10 percent, compared with a typical valuation of 5 percent, making the offer very attractive.

"For BNP Paribas, this is an irresistible offer," said a source. "The valuation is much higher than normal."