Sdb Bank

PE Case Study

Shenzhen Development Bank

MSc in Applied Finance

Instructor: LIM Meng Ann

Presented by:

Ritika MEHROTRA

Shivani GROVER

Wang Jieyi

Wang Yiqing

Submission Date: 3/28/2014

1. What makes Shenzhen Development Bank (SDB) an attractive target for investment, and what are the potential sources of value?

Industry Attractiveness:

* It is a growing Industry supported by:

* A strong underlying economy with an average annual GDP of 8.1% (1996-2002)

* Increase in personal disposal income levels in recent years

* Primary source of financing for most Chinese companies: Underdevelopment of domestic corporate stock and bond market in China had led to the dominance of bank financing among corporates.

* Primary Investment Vehicle: Bank deposits were the primary investment vehicles for both retail and corporate customers due to non-availability of alternative investments products.

* Growth opportunities for retail banking segment: The segment presented tremendous scope supported by the robust growth of the consumer loan market at a CAGR of 129%(1997-2002)

* Untapped markets: Exploding consumer credit market provided great scope in future. Mortgage loans, auto loans and credit card loans markets were considered to have high growth potential.

* Trend of Deregulation in the industry:

* Changes in Regulatory framework with creation of the CBRC which focused on a reliable supervisory foundation, risk management and improved corporate governance of domestic banks.

* Greater autonomy and operating independence

SDB specific Attractiveness:

* Footprint: SDB had a nationwide banking license with a network of 198 branches in 17 cities, which afforded competitive advantage in obtaining low cost funds.

* Favourable location: It is located in the SEZ of Guangdong with a strong presence in the most dynamic regional economy of Pearl River Delta region which boasts of a higher than average real...