NAB collects tidy profit in China shadow banking sell-down

Pretty sneaky little sell off - from the AFR

NAB collects tidy profit in China shadow banking sell-down
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NAB has offloaded an 8.42 per cent shareholding in China Industrial International Trust. Bloomberg
by Angus Grigg
National Australia Bank has quietly sold half of its only Chinese investment, mirroring the exit of other foreign lenders from the high-risk shadow banking sector.
In a deal yet to be disclosed in Australia, NAB has offloaded an 8.42 per cent shareholding in China Industrial International Trust (CIIT) for 420.8 million yuan ($82.5 million).
The stake was purchased by the government-owned Fujian Energy Group, according to an announcement made by the trust's major shareholder, China Industrial Bank.
NAB has never disclosed the purchase price, but it was thought to have paid around $50 million for its 20 per cent stake in 2007, when it became the first foreign bank to invest in China's trust market.

This stake was later diluted to 16.83 per cent.

The disclosed sale price suggests NAB has more than doubled its money or made about $115 million in profit from the investment over the last decade, plus any dividends.
Such trusts typically lend money to property developers who can't get finance from the major banks, often at significantly higher interest rates.
They form part of China's so-called shadow banking sector, which has become more tightly regulated in recent years, but is still a concern to those worried about questionable lending practices.
"I'm not surprised by the sell-down as foreign shareholders in these trusts have limited strategic options and growing risk," said Nicholas Britz, an associate at Shanghai research firm Z-Ben Advisors.

Tighter capital controls

Mr Britz said foreign shareholders also had a limited ability to see what type of businesses such trusts were lending to.
NAB confirmed the sale in an email to The Australian Financial Review, but did not disclose the price.
CIIT is the third biggest trust company in China and increased its outstanding loans by 41 per cent to 908.5 billion yuan ($178 billion) last year.

NAB's sell-down appears to have been prompted by tighter capital controls at home and limited strategic options in China, although the bank may have also been concerned about the trust's aggressive lending growth.
The sale follows Macquarie Group selling out of its problematic Chinese trust company late last year. This followed Morgan Stanley exiting its trust investment in 2014 and the likes of Barclays allowing their shareholding to be diluted, rather than inject more capital into the business.
ANZ has adopted a similar strategy for its shareholding in the Bank of Tianjin.
In July 2006 it paid $159 million for its 20 per cent stake in the lender, which had been diluted to 14.2 per cent by last year, but was worth $1.02 billion.

When the city commercial lender listed in Hong Kong earlier this year, ANZ's stake was reduced to 11.9 per cent.
ANZ also owns a 20 per cent stake in the Shanghai Rural Commercial Bank, which it valued at $1.98 billion in the latest annual report.Foreign lenders rushed into China before the Global Financial Crisis believing they would eventually be allowed to control local banks.
And while the government recently loosened foreign ownership restrictions for trusts, it has not allowed offshore investors to increase their shareholding in local banks beyond 20 per cent.