JPMorgan’s asset management business is to buy the 49% stake it does not already own in China International Fund Management Co (CIFM), a move which follows Beijing’s decision earlier this year to fully open up the mutual fund industry to foreign companies.
The CIFM stake is priced at 7 billion yuan ($1.01 billion), according to the statement on the Shanghai United Assets and Equity Exchange, where Chinese state-owned equities are auctioned.
Fund consultancy Z-Ben Advisors said that pegged the deal at 50 times earnings, and represented a 52% premium over fair value.
“Based on numerous metrics, there is no question that this is an expensive deal,” Z-Ben Advisors said in a note. The higher-than-expected valuation reflects the scarce opportunities for buying a Chinese fund house outright, Z-Ben said.
“Is it worth the premium? For JP Morgan they’d clearly say yes.”
JPMorgan (N:JPM) declined to comment.
China is opening up its capital markets at a faster pace given trade tensions with the United States. Global asset managers including BlackRock (N:BLK) and Neuberger Berman applied to set up fully-owned China mutual fund units after regulators in April scrapped foreign ownership restrictions in the fund management industry.
JPMorgan, which owns 51% of CIFM, in April reached an agreement with its Chinese partner, Shanghai International Trust Co, for 100% ownership of the fund venture.
Last December, JPMorgan won Chinese regulatory approval to establish a majority-owned securities venture, and in June got a green light for China’s first fully foreign-owned futures business.
($1 = 6.9116 Chinese yuan renminbi)
(This story corrects lead and headline to make clear the statement “showed”, not said, and that JPM “would need to pay” $1 bln, not “is to”.)