SHANGHAI: Sumitomo Mitsui Financial Group (SMFG), Japan's third-largest lender by assets, plans to acquire a minority stake in a mid-sized Chinese fund house to access China's struggling but still attractive mutual fund industry, two sources with knowledge of the deal said.
An SMFG unit has agreed to buy a 20 percent stake in Beijing-based China Post & Capital Fund Management Co, the sources said. The deal, which still awaits regulatory approval, is estimated by some analysts to be worth about 400 million yuan ($63.6 million).
China Post Fund declined to comment while SMFG could not be reached immediately for comment.
China's mutual fund industry shrank 12 percent last year to 2.19 trillion yuan as asset managers struggled to lure investors in a stock market that slumped 22 percent amid growing economic uncertainty.
The sector, however, remains attractive to foreign asset managers who bet that China's strong economic growth and growing ranks of middle class would in the long run boost demand for wealth management services.
Of China's 66 fund management firms, more than half are Sino-foreign ventures, and the market is luring more entrants, at least nine overseas companies including Taiwan's SinoPac Financial Holdings, Korea's Mirae Asset Financial Group and UK insurer Aviva Plc have all unveiled plans to form fund ventures in the country.
If the China Post Fund deal is successful, SMFG would become the third Japanese company to invest in a Chinese fund house. Rival Mitsubishi UFJ Trust and Banking Corp and Nikko Asset Management already own Chinese fund ventures.
Japanese financial institutions have been increasingly active in China in recent years. In December, Nomura Holdings became the first Japanese financial group to be allowed to make private equity investments in China, and the investment bank is also waiting for regulatory approval to set up a joint venture securities firm in China.
Last year, Mitsubishi UFJ bought a 33 percent stake in a Chinese fund house from BNP Paribas.
China Post Fund was established in 2006 and its main shareholders include Capital Securities and China Post Group, the country's biggest postal service provider.
SMFG is buying the 20 percent stake from China Post Fund's third and smallest shareholder, Beijing Changan Group, a source said. Foreign stakes in a Chinese fund venture are capped at 49 percent.
Based on typical valuation of a Chinese fund house recently -- about 8 percent of a firm's asset under management (AUM) -- as well as China Post Fund's current size of 25 billion yuan in AUM, the deal is worth about 400 million yuan, analysts said.
The deal was submitted to the China Securities Regulatory Commission for approval last month and the transaction still needs to receive the green light from China's Ministry of Commerce, one of the sources said.
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