A Big Successful Story in China (TPG)

HONG KONG -- TPG is close to a deal to offload at least part of its $1.5 billion controlling stake in Shenzhen Development Bank Co. to China's No. 2 insurer, providing an exit route for the U.S. private-equity firm's highest-profile investment in China.

Ping An Insurance (Group) Co. of China is in advanced talks with TPG and Shenzhen Development to boost its stake in the Chinese bank by subscribing to new shares in a placement by the bank and taking at least some of TPG's shares, according to people familiar with the situation. The negotiations over the two-stage deal could be hammered out this week, the people said. The exact terms of the sale couldn't be determined, and the situation could change.TPG's sale is expected to garner a spectacular return, justifying the risky bet it placed on the Chinese bank five years ago. Based on Shenzhen Development's last trading price, TPG's stake is worth $1.5 billion, 10 times the roughly $150 million TPG's Asian arm Newbridge Capital paid for the shares in 2004. TPG's control of the bank could allow it to extract a premium to Friday's closing price of 20 yuan ($2.93) apiece.Shares in both Shenzhen Development and Ping An were suspended Monday pending announcements.The selldown of TPG's 17% controlling stake in Shenzhen Development would be a landmark because TPG is the only foreign investor to own control of a Chinese bank. It has worked hard to overhaul the bank's risk management and cement its control.TPG is able to control the bank with its 17% holding because the Chinese lender's shares are widely held.TPG furthered its control by appointing a former U.S. Treasury deputy secretary, Frank Newman, as chairman of the bank and has worked since the 2004 purchase to stack the bank's board with allies.When TPG invested in Shenzhen Development, foreign investors were wary of touching Chinese banks because of balance sheets laden with nonperforming loans racked up by years of state-directed lending. Shenzhen Development had similar problems to other lenders and received less government support to clean its balance sheet than its bigger state peers, making the bank's turnaround a major endeavor.Talks over the sale come after Shenzhen Development's shares have more than doubled this year as expectations for a rebound in China's economy grow. TPG's exit timing appears to be more opportunistic than sales by several Western banks that have unloaded their Chinese bank holdings this year under pressure from regulators to raise capital.After much wrangling, TPG sealed the deal in 2004 that gave it effective control over the bank and assuaged regulators with an agreement for a five-year lockup on the stake when it purchased the shares. That lockup is scheduled to expire later this year, and it is unclear how TPG intends to clear that hurdle.Shenzhen-based Ping An, the country's second-largest insurer by premiums after China Life Insurance Co., is a natural buyer for the stake. Beyond sharing the same hometown, acquiring a bigger stake in Shenzhen Development will help the insurer further branch out into banking. Ping An Chairman Peter Ma envisions turning the insurer into a diversified financial conglomerate by beefing up its banking and asset-management businesses.Ping An's ambitions to expand took a turn for the worse when it made an ill-timed investment in Fortis NV in late 2007 that cost it about $3 billion. It also scrapped a $3.4 billion deal to form an asset-management joint venture with Fortis and fought the Belgian government's attempt to sell the financial-services group to BNP Paribas SA.Following that disastrous investment, Ping An decided to focus its energies on building its domestic franchise. Buying the Shenzhen Development stake would help extend Ping An's banking reach beyond a network it has built through its own Ping An Bank.Ping An is already the second-largest shareholder of Shenzhen Development, with a 4.9% stake as of Dec. 31.Goldman Sachs Group Inc. is advising Ping An on the deal.For Shenzhen Development, the deal's component that involves the sale of new shares will help it raise more capital to meet regulatory standards."The purpose of the fund raising is to raise the bank's capital-adequacy ratio above 10%," said a Shenzhen Development executive.Shenzhen Development's capital-adequacy ratio was 8.5% at the end of March, below the 10% prerequisite for Chinese banks that plan to conduct mergers and acquisitions.Shenzhen Development, one of 17 lenders in China that has a national license, had 282 outlets throughout the country at the end of last year.

In China, Brands Come With Plots - WSJ

The line between advertisers and entertainment producers is rapidly blurring in China, as many brands go online with their own films and Web series, taking advantage of the shortage of popular shows on China's state-controlled TV.

Increasingly, advertisers are moving from being mere sponsors of online entertainment to building plots around their products. Among the latest to jump on the bandwagon is French liquor company Pernod RicardSA. In late April, Pernod launched an interactive online movie to promote one of its cognac brands, Martell Noblige.

Called "Style, Experience," the film plays like a watered-down homage to James Bond and "The Bonfire of the Vanities." The plot centers around a crucial day in the life of Ken, a dashing Shanghai native who tools around in a BMW, lives in a gunmetal-gray bachelor pad and has plenty of rich-boy toys.

Viewers determine the plot and length of the movie, which can last from eight to 18 minutes, as they "help" the hero make choices that could ultimately result in him getting promoted and winning the girl, or ending up dateless and jobless. (The movie airs on Martell's local Web site http://www.martellnoblige.com.cn.)

Product placement, while hardly subtle, isn't intrusive, with cognac bottles lurking in the background as Ken -- played by talk-show host Bai Xuxu -- dates and otherwise disports himself, backed by a sophisticated soundtrack.

The movie marks the culmination of a yearlong digital-ad campaign by Pernod, in which the company, among other things, sent bloggers to various Chinese cities to review trends.

Pernod won't disclose the cost of the campaign, which is intended to help establish Martell Noblige in China's $37 billion-a-year spirits market. China is the world's second-largest cognac market in terms of volumes consumed, behind the U.S., according to researcher Euromonitor International.

Pernod has established a strong foothold in the Chinese market, overtaking Rémy Cointreau Group for second place, with 26% market share, compared with Rémy's 20%, as of 2007, the latest data available from Euromonitor. Both companies still lag behind leader LVMH Moët Hennessy Louis Vuitton, which holds a 44% market share.

Pernod's Martell Noblige is relatively new to China's cognac consumers, who are more familiar with Martell VSOP and XO. Noblige is typically served in mixed drinks, and is intended for a much younger audience, says Yann Lombard-Platet, managing director at ad agency Nurun, which created the campaign. "The way to engage this audience is to provide entertainment and content," he says.

It's something Chinese audiences don't seem to mind. "People in China have fewer options for entertainment. They think, 'So long as you give me something interesting, I don't mind if your brand somehow shows up,' which is something that viewers in the U.S. or Europe would be less receptive to," said Chris Reitermann, president of OgilvyOne China, a unit of ad holding company WPP.

Last year, Anglo-Dutch consumer-goods maker Unilever launched a Chinese version of ABC-TV's comedy "Ugly Betty," called "Ugly Wudi," with plotlines that plug Dove soap. Earlier this year, Sony Corp.'s Sony Pictures Television International kicked off "Sufei's Diary," a Chinese twist on "Sofia's Diary," a Web series that originated in Portugal; the Chinese version touts Sony and Clinique products in three-minute daily episodes.

The Martell ad campaign attempts to engage this online audience longer. "A movie of 15 minutes allows an audience to sit and think what it is they are doing, rather than passively looking. In a two-minute miniseries, there's hardly any time," says Mr. Lombard-Platet.

The difficulty is assessing the effectiveness of these new digital initiatives. So far, the Martell Noblige Web site has received 1.2 million visitors, as measured by Google Analytics, a modest number by China standards.

However, a quarter of the audience spent more than 25 minutes on the site, and 40% of those viewers returned to watch the movie again, which suggests a relatively strong level of engagement.

Nurun, a division of Canada's Quebecor Media Group, said Web chatter about Martell Noblige has increased threefold since the campaign started. But Nurun is still assessing the quality of the buzz to determine how much of the chatter is positive, and if the campaign has made viewers more predisposed to buy the product.

China New Policy

Beginning August 1, Chinese companies can now use their foreign exchange funds or buy from the state reserve to fund overseas ventures; easing rules for overseas investments. According to the State Administration of Foreign Exchange (SAFE), previously only large multinational companies were allowed to use their forex funds to lend to overseas ventures. “We had done a stress test, and the maximum possible capital outflow from this new mechanism will be US$30 billion,” quoted an official. The new rules allows forex outflow to be capped at 30 percent of the parent company’s net assets while also not exceeding the subsidiary’s total investment registered with SAFE. This condition should safeguard against forex outflows having a huge impact on China’s balance of payments.

Bio-Bridge Science Signs a Contract to Form a Cell-Culture Medium Joint Venture in Beijing, China

OAK BROOK, Ill., Jun 10, 2009 (BUSINESS WIRE) -- Bio-Bridge Science, Inc.(OTCBB:BGES), a biotechnology company engaged in the commercial development of vaccines and vaccine-related products announced today that its wholly-owned subsidiary, Bio-Bridge Science (HK) Co., Ltd. has entered into a joint venture contract with JR Scientific Inc., a Woodland, California based manufacturer of classical and custom cell culture medium and sera products ("JRS") and several other investors, to form a new cell culture medium joint venture in Beijing, China. The registered capital of the new joint venture will be RMB 10,000,000 (approximately US $1,464,000). Bio-Bridge Science will invest RMB 5,100,000 in cash for a 51% controlling interest and JRS will provide technology for a 15% ownership interest in the new joint venture.The new joint venture is expected to provide cell culture medium for scientific research and vaccine production for both internal and external purposes, as well as, to provide the Company with another source of revenue,diversified product offerings, and expanded sales and trade networks.Dr. Liang Qiao, Chairman and CEO of Bio-Bridge Science said, "We are pleased to see the execution of the joint venture contract among Bio-Bridge Science, JRS and other investors. The new joint venture will complement our previous controlling stake acquisition of Xinheng Baide Biotechnology Co. Ltd., a serum manufacturing company, strengthening our position as a vaccine-related biomaterials supplier in China." This press release contains forward-looking statements. Forward-looking statements include statements concerning plans, objectives, goals, strategies, future events or performance, and underlying assumptions and other statements that are other than statements of historical facts. These statements are subject to uncertainties and risks including, but not limited to, product and service demand and acceptance, changes in technology, economic conditions, the impact of competition and pricing, government regulation, and other risks defined in this document and in statements filed from time to time with the Securities and Exchange Commission. All such forward-looking statements, whether written or oral, and whether made by or on behalf of the company, are expressly qualified by these cautionary statements and any other cautionary statements which may accompany the forward-looking statements. In addition, the company disclaims any obligation to update any forward-looking statements to reflect events or circumstances after the date hereof. Please refer to the Company's SEC filings for additional information.

Chinese Auto Sales Surge Ahead

Beijing's policies to support China's auto market drove sales up 34% in May, according to data issued Tuesday by a semi-official industry group, as the country remained a standout in the struggling global car industry.Auto sales last month totaled 1.12 million units, the China Association of Automobile Manufacturers said. In contrast, U.S. car sales fell 34% in May to 925,824 units."Based on the current momentum, sales this year will easily reach 10 million units," said Global Insight analyst John Zeng. "For this year, there is no question about growth."China's auto sales in 2008 rose 6.7% to 9.38 million units. Sales in the first five months of this year rose 14% from a year earlier to 4.96 million units, according to the CAAM data, the first time China's car sales growth has hit double digit percentages this year.The latest data show Chinese consumers are still responding to government measures implemented early this year to boost small car sales, which included subsidies and a purchase tax cut. For example, sales of minibuses, a segment that benefits from the policies, rose 84% in May from a year earlier to 172,600 units.Sales of other vehicle segments have also been growing. Passenger car sales rose 42% from a year earlier to 591,300 units, while sales of sport-utility vehicles rose 26% to 47,700 units, CAAM said.Car sales in China are soaring even as sales in developed markets are falling. New-car registrations in Japan fell 19% in May to 178,503 units and new car registrations in Europe dropped 12% to 1.25 million units in April.Mr. Zeng said the lasting impact of the measures has surprised some in the industry. Forecasts by analysts and industry officials early this year called for flat or low-single digit growth for 2009 and some observers had expected that the impact of the measures would have petered out by now.To be sure, the strong sales so far this year could mean that some buyers are bringing forward the timing of their car purchases, which could cut into sales numbers down the road.However, as sales in the second half of last year were weak, on-year growth is still likely to be positive.China's auto market likely has seen its peak for the year, Mr. Zeng said, adding that June has already shown signs of a slowdown in sales. The summer months have traditionally been slow, he said.Mr. Zeng said the biggest beneficiaries of the government policies are General Motors Corp.'s commercial vehicle joint venture in China, SAIC-GM-Wuling Automobile Co., and Chongqing Changan Automobile Co.Consumers who buy the Wuling Sunshine and Wuling Rong Guang minivans and Changan Star minibuses qualify for the government incentives because of the models' small engines. __ WSJ

China Has No Intention of Dumping Dollar

China, the world's largest holder of official foreign exchange reserves, has no intention of abandoning the U.S. dollar, Vice Foreign Minister He Yafei said on Tuesday.He was speaking at a news briefing on President Hu Jintao's forthcoming trip to Russia, where he will attend an inaugural summit of the BRIC countries -- Brazil, Russia, India and China -- in Yekaterinburg on June 16.Russian President Dmitry Medvedev and others have said the meeting would discuss the search for alternatives to the dollar as the world's principal reserve currency.But, asked about the issue, He said: "Nobody is talking about dumping the dollar. I don't think this is realistic."Chinese central bank governor Zhou Xiaochuan caused a stir in late March by proposing that the Special Drawing Right, the International Monetary Fund's unit of account, could eventually replace the dollar.Asked if the summit would broach the idea of a supernational currency, He said: "At the moment there are some experts and academics who have raised this issue and are discussing it at that level."

Bain Capital Invests in China's GOME

HONG KONG – Private-equity firm Bain Capital LLC has signed a contract to invest 3 billion yuan ($440 million) in Chinese retailer GOME Electrical Appliances Holdings Ltd., people familiar with the situation said Sunday.The moves comes as ripples surrounding alleged "economic crimes" committed by the company's former chairman, Wong Kwong Yu, spread. Shenzhen Mayor Xu Zongheng and his wife were put under shuanggui -- a form of detention imposed on party officials -- in an investigation into his alleged links to Mr. Wong, the South China Morning Post reported Saturday. The paper also said Mr. Wong was involved in share-price manipulation."Bain's investment will hopefully salvage shareholders' confidence and dilute people's concerns over Wong's influence on the company," one person said. "This is a credible house buying into the company, after much detailed due diligence."Under the contract, Bain will take up an 18% equity stake in Gome via open tender at HK$0.67 each and will subscribe to seven-year convertible bonds which can be converted into new shares, another person said. The bonds, with a conversion price set at HK$1.18 or a slight 5% premium over Gome's last trading price, would give Bain an added 12% stake at most in Gome, he said.GOME was last traded at HK$1.12 apiece. Its shares have been suspended from trading since Nov. 24, after an investigation began on its ex-chairman Mr. Wong.The investment will also give Bain three board seats in the company, the person said. Details of the deal will be announced as soon as Tuesday, another person said.When the conversion on the bonds into new shares is fully exercised, Bain will have an about 27% stake. Wong now has a 35.6% stake in Gome."Since Wong resigned from the chairmanship, Gome has been run by people unrelated to him," the first person said. "Wong is no more than a shareholder in the company now."Gome's management had gone through a major reshuffle since Mr. Wong, Gome's founder, resigned in January after he was suspended from his post in December. He was replaced by Chief Executive Chen Xiao, who has been chief since a company he founded, China Paradise Electronics Retail Ltd., was bought out by GOME.Gome has since been seeking fresh capital via a stake sale to private equity funds to shore up its balance sheet, at a time when its operations have been hit by the onset of the financial crisis and falling appetite for consumption goods.Gome, which has more than 800 retail outlets throughout China, had 3.05 billion yuan ($448 million) in cash and cash equivalents at the end of last year, but the retailer has to repay 4.70 billion yuan as convertible bonds it issued will mature next year. Kohlberg Kravis Roberts & Co. and Warburg Pincus expressed interest in the Beijing-based company earlier on, but later dropped out, leaving Bain as the only horse in the race. Warburg Pincus already holds a minority stake in Gome and has one nonexecutive director seat on the board.Cazenove Asia Ltd., which has been integrated into Standard Chartered PLC and N M Rothschild & Sons (Hong Kong) Ltd. are financial advisors to Gome.

call to go green in china

Chinese minister of environment, Mr. Zhou, has a word of warning for the newly rich."It is a disgraceful lifestyle to drive a BMW but have only dirty water to drink." We should be concerned about a lack of respect for the environment as the country carries out its economic stimulus plan. To Fact-finding teams from the Ministry of Environmental Protection recently visited some 40 cities and discovered defects in the 4-trillion yuan stimulus package, which is funding investment in many new infrastructure projects and factories. Of particular concern is environmental protection not being highlighted in the overall plan; new industrial operations causing additional environmental problems in China's central and western frontier regions; national environmental protection policies being affected; environmental management by companies becoming more relaxed, and corporate investment in pollution control seeing a marked decline.

From November to the end of February, the ministry rejected or suspended approval of 14 polluting and high energy-consuming projects with development budgets totaling 104 billion yuan. On top of that, ministry officials told China Daily yesterday that due partly to government policing of investment projects, China is fully capable of meeting its goals in the emission control of sulfur dioxide and chemical oxygen demand, a main index of water pollution. The target is to cut emissions by 10 percent of the nation's 2005 level, in line with the goals for the country's 2006-2010 development program.Controlling those two emissions had only been possible when developed countries' per capita GDP reached the $20,000 level. It is a feat for China to achieve the same when its per capital GDP is only around $3,000, he said.This is because the country has come to realize that no economic policy can be successful if not matched by sound environmental policy, Zhou said. Convinced that China can "use the crisis as an opportunity to adjust its industrial structure," Zhou also said he and his staff would keep an eye out for local governments attempting to ignore environmental protection in their investment initiatives.