JPMorgan is set to become the first foreign company to purchase a controlling stake in its joint venture company in China.
The investment bank has been given the chance to bid for control of its Chinese asset management business. However, it has been given no choice but to pay a significant premium for the privilege.
The United States' biggest bank plans to purchase 2 percent of its Chinese joint venture's shares from its partner Shanghai International Trust. According to a recently submitted regulatory filing by JPMorgan's Chinese partner, the shares will be offered at a 33 percent premium from its current market price.
JPMorgan currently owns 49 percent of its joint venture company with Shanghai International Trust called the China International Fund Management. The company is currently valued at around $1.3 billion, according to exchange filings.
The 2 percent stake being sold to JPMorgan has been set at $35.1 million, which would place the entire venture's value at around $1.7 billion or one-third of its current value. All in all, JPMorgan would be paying around $9 million more for the 2 percent stake's current market value.
China originally announced its intentions of lifting foreign capital limits back in late 2017. The initial lifting, which would essentially allow foreign firms to own more than 49 percent of a Chinese company, will first be applied to companies in industries such as life insurance, investment management, and securities firms. China planned to roll out the measure in three years.
China's Premier Li Keqiang announced at the recently held World Economic Forum in Dalian that they will be enforcing the lifting of foreign ownership caps one year ahead of schedule as a sign of China's openness to the global community.
The lifting of foreign capital limits for securities, futures, and life insurance firms was accelerated from 2021 to 2020.
China's announcement came just days after the highly-awaited meeting between US President Donald Trump and Chinese President Xi Jinping at the sidelines of the G20 summit in Japan over the weekend. Market analysts have suggested that the move could be China's way of extending a goodwill gesture to the global community.
China currently offers a massive opportunity for banks such as JPMorgan. According to research data, China apparently has over 1.4 billion citizens with an estimated $20 trillion in investable financial assets.
That number is expected to grow to over $26 trillion by the end of 2020. JPMorgan CEO Jamie Dimon previously stated that the company was going "all in" in its efforts to develop its Chinese business.
