The failure of Silicon Valley Bank has left many Chinese funds and tech start-ups in the lurch, as the collapsed institution served as a key funding bridge for groups operating between China and the US.
SVB’s abrupt takeover by US regulators on Friday has also cast doubt over the fate of its joint venture in China with Shanghai Pudong Development Bank, which maintains a separate balance sheet and has total assets of Rmb21bn ($3bn).
The Silicon Valley lender played a big role in China’s dollar-based ecosystem for funding fledgling companies, industry insiders said, with funds and start-ups often holding money at the bank before bringing it onshore to mainland China.
The run on SVB happened so quickly — with $42bn leaving the bank’s coffers on Thursday in the US — that by the time decision makers in China were waking up on Friday morning local time, attempts to rescue their money were already in peril.
“We tried Friday morning, but it was already too late. The transfer is still processing,” said the founder of a Beijing-based tech company with about $10mn in limbo. “It’s very crazy, we didn’t think this could happen.”
The founder, who asked not to be named, was hopeful that a large American bank would soon take over SVB’s US assets and make his company whole. Half of their capital was held onshore in renminbi at a separate bank, so they did not foresee any immediate payment issues, the founder noted.
Several China-based venture capital firms said some start-ups in their portfolios faced similar issues of not being able to access funds stuck in SVB outside of China. The bank’s collapse comes at a particularly tough time for Chinese groups raising foreign capital, with the ecosystem whipsawed by Beijing’s tech crackdown, Covid-19 pandemic controls and rising geopolitical tensions with Washington.
Dollar investments in the country’s start-ups fell by nearly three-quarters last year.
SVB was especially popular among Chinese biotech groups that operated between the US and China. More than a dozen tech and life sciences companies trading in Hong Kong list SVB among their primary banks, potentially jeopardising millions of dollars that was destined for long-term clinical development programmes.
Zai Lab, a developer of cancer treatments with offices in Shanghai and San Francisco, is one such group. The company on Saturday said it had an “immaterial” $23mn exposure to SVB, with about 2.3 per cent of its cash and cash equivalents held at the bank at the end of 2022.
Chinese regulators are rushing to find a solution for SVB’s local joint venture, in which the US bank holds a 50 per cent stake. The Shanghai branch of China’s banking regulator held an emergency meeting over the weekend to discuss the problem, according to one person familiar with the discussions.
SVB’s collapse means that it might not be allowed to remain a major shareholder of the venture, according to Chinese commercial banking regulations.
Under one scenario that was discussed, Shanghai Pudong Development Bank could take over SVB’s stake, “but it really depends on how SPDB thinks about the prospect of the venture and whether it can keep another commercial banking licence in this regulatory environment”, the person said, adding there was still no firm plan.
The joint venture, set up in 2012, reported a Rmb5.5mn loss on revenue of Rmb195mn in the first half of 2022.
It said in a statement on Saturday that it had a sound governance structure and was committed to stable operations under China’s laws and regulations.
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