UnionPay Stirs IPO Pot With Big Numbers 银联有望上市

By newsdoug on April 12, 2012

UnionPay, China’s equivalent of Visa (NYSE: V) and MasterCard (NYSE: MA), is making headlines today with some impressive numbers showing its profit has exploded in the last few years, as it looks to highlight its growth story in the run-up to what could well become the blockbuster Chinese IPO of the year. Of course this is all just my guessing, as UnionPay, whose stakeholders include most of China’s major banks, has never given a detailed timeline for such an offering, which I would expect to come as a dual listing in Hong Kong and Shanghai as soon as the second half of this year. Such an offering would have huge appeal for investors, as it would offer a strong financial services alternative to China’s big banks, which often behave more like policy lenders than true commercial banks and, as a result are now in the midst of a crisis after sharply boost their lending under a directive from Beijing at the height of the global financial crisis. By comparison, UnionPay operates a national electronic payments settlement network similar to the Cirrus and Plus networks operated by MasterCard and Visa, which is much less vulnerable to the whims of government policy. UnionPay has also been aggressively expanding the network globally, leveraging its strong base in China to sign a steady stream of major agreements to extend its network to major global banks and other financial services firms. One of the latest moves in that direction saw the company sign a deal last August to link its network with US Bancorp (NYSE: USB), a top US player, and more recently it inked another deal with another US company called WorldPay. That aggressive expansion and the growth of the financial services industry in China is apparent in UnionPay’s bottom line, which has grown 10-fold over the last 5 years as its profit reached just over 1 billion yuan in 2011, or about $160 million. (Chinese article) According to a Chinese media report, UnionPay, which just celebrated its 10th birthday, made the profit on about 6 billion in revenue, and the company now has some 13.8 billion yuan in assets. The report says that UnionPay’s stakeholders are expressing some dissatisfaction with the level of their dividends from the company, a sign that they want to see more cash returns from this highly profitable investment as they face their own cash crunches following the 2009-2010 lending binge that was part of Beijing’s 4 trillion yuan economic stimulus plan during the global financial crisis. As a result of that binge, many of the big banks are now facing a looming surge in bad loans, and have turned to capital markets to raise more funds to shore up their balance sheets. (previous post) Against that backdrop, a multibillion-dollar IPO for UnionPay looks all but inevitable, providing the banks with a better return on this highly profitable investment, as well as some much needed cash.

Bottom line: UnionPay could make a multibillion-dollar IPO by the end of this year, capitalizing on its explosive growth and a need for cash by its major stakeholders.

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