Newbridge Capital in First Foreign Control Investment in Chinese Banking Sector

December 30, 2004

Cleary Gottlieb represented Newbridge Capital in its purchase of shares of Shenzhen Development Bank (SDB). Newbridge acquired its interest from four entities controlled by the Shenzhen city government. Initial documentation for the transaction was signed on June 21, 2002; the definitive purchase agreement was signed on May 29, 2004; and the transaction closed today.

Newbridge’s purchase marks the first sale of the controlling interest in a Chinese bank to a foreign investor. Newbridge acquired only 18% of the bank’s shares, meaning that SDB will continue to operate as a “Chinese bank” and not under the more restrictive regulatory regimes applicable to foreign-owned and Sino-foreign joint venture banks. Given SDB’s highly dispersed shareholder base, Newbridge expects to exercise control of the bank while holding a minority share. The transaction required numerous Chinese regulatory approvals, many of them pursuant to regulations issued during the course of the deal. Newbridge’s investment will bring foreign management to a Chinese bank on an unprecedented scale — an American has already begun serving as bank president and Newbridge representatives and other foreign financial experts have taken seats on SDB’s board.

Progress on the transaction was complicated in 2003 when a rival party attempted to negotiate a separate transaction with the city of Shenzhen. Negotiations on the transaction resumed in the spring of 2004, after a halt of about eight months, when Newbridge withdrew an arbitration action against the government-controlled sellers and a tortious interference claim against the rival bidder.

SDB is one of China’s five domestically listed “joint stock banks.” The bank’s headquarters are in Shenzhen, China, the special economic zone just over the border from Hong Kong.