TPG strikes biggest Sri Lanka buyout deal with $113 mln Union Bank buy

By Shihar Aneez and Stephen Aldred

COLOMBO/HONG KONG (Reuters) - TPG Capital Management LP has agreed to buy a majority stake in Sri Lanka's Union Bank of Colombo PLC (UBC) for $113 million in the country's biggest buyout deal.

TPG, via its affiliate Culture Financial Holdings Ltd, will take a 70 percent stake in Union Bank through a combination of primary and secondary shares and warrants, the bank and the fund said on Thursday. The deal allows TPG to increase its stake up to 75 percent, they added in a statement.

Sri Lanka's government is keen to develop the banking sector to support growth in an economy which is emerging from the trauma of a protracted civil war. The economy is expected to growth 7.8 percent this year, faster than last year's 7.2 percent growth.

Puneet Bhatia, a partner and TPG's India director, told Reuters the private equity fund hopes to turn Union Bank into one of Sri Lanka's top five banks.

Union Bank is the eighth-largest of Sri Lanka's 12 listed banks and has a market capitalisation of around $67 million, according to Thomson Reuters data.

"Our experience with banks in Asia shows that a small, community-based lender can create a very strong financial institution," said Bhatia.

The buyout will boost Union Bank's Tier 1 capital, a measure of its financial strength, to enable it to meet the central bank's minimum capital requirement of 10 billion rupees ($76.8 million) before a Jan. 1, 2015 deadline.

The returns made from relatively small investments in banks in emerging markets can be substantial for private equity funds.

Last year, TPG sold part of its stake in Indonesia's Bank Tabungan Pensiunan Nasional Tbk PT to Japan's Sumitomo Mitsui Banking Corp, putting it on course to earn more than 10 times its initial investment made in 2008.

($1 = 130.1800 Sri Lankan rupees)

(Reporting by Shihar Aneez in COLOMBO and Stephen Aldred in HONG KONG; Editing by Denny Thomas and Matt Driskill)