Negotiation is key as UBS heads for China JV majority stake

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Z-Ben, the impeccably connected China-based research house, reported in October that UBS is to succeed in its move to a 51% stake in its Chinese securities joint venture (JV), UBS Securities.

UBS hasn’t confirmed it, but if Z-Ben is correct, UBS will acquire a further 26% stake in its JV through public auction, from the 24.99% it holds now, and could be a majority shareholder by November 8.

This would make it the first, barring the special case of HSBC, to gain majority control, with Credit Suisse and Morgan Stanley said to be next in line.

Biggest challenge

Z-Ben’s take on this is an interesting one: that, contrary to popular belief, China is not restricting deals, and that the biggest challenge is instead foreign banks reaching agreement with their local counterparts.

“We stress again: the onus falls squarely on the shoulders of foreign partners to push for a commercial agreement,” says Z-Ben. “This is business, through and through.”

In that context, the more interesting thing to watch will be who doesn’t announce a majority shareholding, and to ask why.  

Goldman Sachs, having been first and something of an experiment, needs to agree terms with Fang Fenglei to gain majority control of its complex venture structure; Citi needs to do so with Orient Securities, and has not yet done so.

Houses that can’t reach agreement have a choice: live with the minority stake they’ve got – which in Goldman’s case still gives it effective management control – or do as JPMorgan has done, rip the whole thing up and start again with a structure geared from the outset to be a foreign-controlled venture.

There is a lot of negotiating to do before we will have a clear picture.