Bank Financial Management report
Executive summary
On May 12, 2003, the board of Shenzhen Development Bank (‘SDB’) made the public announcement that the transitional management committee appointed by TPG Newbridge Capital (‘Newbridge’), and tasked with the role of advising SDB management during the transition period of Newbridge’s pending acquisition of a 17.89% stake, was dissolved, and negotiations of the potential investment has failed.
The aim of this report is to provide analysis and recommendations on:
1. Quality of SDB as a standalone asset, with particular regard to:
Asset base and loan book
Capital adequacy in light of the current regulatory environment
Financial performance and earnings capability
2. Current valuation of the SDB stake by Newbridge
The key findings of this report are as follows:
Significant risk exists in SDB’s loan book, though this risk is likely understated and is actually higher
Capital adequacy remains an issue, with the threat of regulatory change carrying the potential for SDB to require a capital raising
Profitability (in light of poor credit management, and a recent push towards increasing low-risk loans) remains poor, further enhancing capital adequacy issues
Acquisition multiple of 1.6x book value represents a premium to precedent transactions, but is at a significant discount to the current market trading comparables
This report recommends that Newbridge proceed with their investment in SDB at the current acquisition multiple of 1.6x book value.
1.
Shenzhen Development Bank
Overview
Shenzhen Development Bank (‘SDB’) is China’s fifteenth largest commercial bank, with a nationwide banking licence and a network consisting of over 225 branches nationwide. It was founded through the combination of local credit cooperatives, and started business in 1987 in Shenzhen, a special economic zone in the southern province of Guangdong. In its current form, SDB is involved in traditional commercial and retail banking businesses,
On May 12, 2003, the board of Shenzhen Development Bank (‘SDB’) made the public announcement that the transitional management committee appointed by TPG Newbridge Capital (‘Newbridge’), and tasked with the role of advising SDB management during the transition period of Newbridge’s pending acquisition of a 17.89% stake, was dissolved, and negotiations of the potential investment has failed.
The aim of this report is to provide analysis and recommendations on:
1. Quality of SDB as a standalone asset, with particular regard to:
Asset base and loan book
Capital adequacy in light of the current regulatory environment
Financial performance and earnings capability
2. Current valuation of the SDB stake by Newbridge
The key findings of this report are as follows:
Significant risk exists in SDB’s loan book, though this risk is likely understated and is actually higher
Capital adequacy remains an issue, with the threat of regulatory change carrying the potential for SDB to require a capital raising
Profitability (in light of poor credit management, and a recent push towards increasing low-risk loans) remains poor, further enhancing capital adequacy issues
Acquisition multiple of 1.6x book value represents a premium to precedent transactions, but is at a significant discount to the current market trading comparables
This report recommends that Newbridge proceed with their investment in SDB at the current acquisition multiple of 1.6x book value.
1.
Shenzhen Development Bank
Overview
Shenzhen Development Bank (‘SDB’) is China’s fifteenth largest commercial bank, with a nationwide banking licence and a network consisting of over 225 branches nationwide. It was founded through the combination of local credit cooperatives, and started business in 1987 in Shenzhen, a special economic zone in the southern province of Guangdong. In its current form, SDB is involved in traditional commercial and retail banking businesses,