UBS Wants Majority Stake in Chinese Joint-venture as Permitted by New Regulations

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Swiss investment bank UBS has announced that it plans to capitalise upon China’s recent decision to lift restrictions on foreign ownership of domestic financial institutions by acquiring a controlling stake in its local joint-venture.

Both President Xi Jinping and central bank governor Yi Gang stressed China’s commitment to further opening of the country’s financial system at the 2018 Boao Forum for Asia, highlighting the launch of new policies that will remove caps on the foreign ownership of key financial institutions.

These include the cancellation of foreign ownership restrictions for banks and financial asset management companies, as well as a lifting of the ceiling on foreign invested equity percentages for securities companies, fund management companies, futures companies and life insurance companies to 51%, followed by the removal of restrictions after three years.

UBS has just announced that it plans to increase it stake in its Chinese joint-venture UBS Securities to 51% from 25%,  as permitted under the new regulatory framework.

If successful the Swiss bank will be the first overseas financial services firm to take advantage of the loosened investment restrictions to acquire control of a domestic joint-venture.

“China is a key market for UBS,” said the bank in an official statement. “The further opening up of China’s financial sector represents great opportunities.”

The China Securities Regulatory Commission is currently reviewing the application, with no schedule for a decision specified.

While China’s decision to significantly ease foreign ownership restrictions for domestic financial institutions goes a long way towards opening up the finance sector, outside observers have expressed skepticism about the extent to which Beijing will allow overseas banks to make inroads.

Chief amongst them is the requirement that holding companies planning to obtain controlling stakes in joint-ventures possess a net asset value of at least 100 billion yuan (approx. USD$15.9 billion), as outlined by a consultation paper launched by the China Securities Regulatory Commission in March.

“There are still many issues that remain including the lifting of foreign ownership limits, which remains a key concern for our members,” said Asifma chief executive Mark Austen to the Financial Times.

“Our consensus is that the Rmb100bn net asset requirement for controlling shareholders of securities firms is far too high to be practical and achievable for the vast majority of firms…we believe this needs to be urgently addressed.”

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