Strategic Stake In Sri Lanka: TPG Capital Management Acquires Majority Share in Union Bank of Colombo

Strategic Stake In Sri Lanka: TPG Capital Management Acquires Majority Share in Union Bank of Colombo

TPG Capital Management has announced its acquisition of a majority stake in Sri Lankan Union Bank of Colombo PLC. The stake will be purchased for $113 million. This is easily the country's largest buyout deal. TPG through its affiliate the Culture Financial Holdings Ltd., will take charge of a 70% stake in the Union Bank. The acquisition of the stake will be through a blend of primary and secondary shares along with warrants. An added plus point of the deal is that it gives TPG the option of increasing its capital to 75%.

Sri Lanka's government is also looking to develop the banking sector with the aim of improving the state of the country's economy. After war and conflict has taken its toll on the nation, it is high time for peace and economic prosperity to descend on it. Analysts have estimated that the Sri Lankan economy will grow by 7.8% this year which is 0.6% higher than last year.

Puneet Bhatia, the director of TPG India and a partner had been quoted by Reuters as saying that he aims for Union Bank of Colombo to be among Sri Lanka's top 5 banks. It is currently the eighth largest bank in this nation. Thomson Reuters data has indicated that the bank has a capitalisation of $67 million USD.

"Our experience with banks in Asia shows that a small, community-based lender can create a very strong financial institution," Bhatia has been quoted as saying by Reuters India. The Reuters report has also indicated why the acquisition of this stake is such a positive thing for the bank. The buyout will increase the bank's Tier 1 capital which is an indication of its financial strength. The bank will then be able to meet the minimum cap requirement of 10 billion rupees prior to the January 2015 deadline.

TPG has a history of successful stakes in banks. It sold a stake acquired in an Indonesian bank for 10 times the initial investment it had made. After emerging from a turmoil of 26 years of civil war, this country needs a boost and TPG has provided just that for its banking sector.

Sri Lanka has emerged as one of the topmost growing economies in the world currently. But its mostly state controlled banking system has been perceived as inefficient. This is set to change with the country keeping itself steady on the growth trajectory through deals and agreements such as these.

TPG is also looking forward to good returns from its investment. “As a strategic and first-time investor in Sri Lanka, we are very encouraged by the country’s economic growth momentum and the central bank’s policy initiatives to enhance the country’s banking sector,” Tim Dattels, TPG’s Asia co-head has been quoted as saying in a press release.

The Sri Lankan government has also allowed TPG to breach the ownership cap in banks in the nation. According to regulations, investors can purchase only 10% of a Sri Lankan bank and exceed to 15% with approval from regulators. With TPG set to acquire more than 70% of the Union Bank of Colombo, a new precedent has been set. Given TPG's reputation for turning everything it touches to gold, Sri Lanka's economic prospects look really bright.