At a time when profitable exits from private equity investments are few and far between, TPG Capital stands poised to reap a five- to ninefold gain on the sale of its stake in China's Shenzhen Development Bank Co. Ltd. -- provided that Chinese authorities don't bar the way to a cash realization, as news reports say they might.

TPG's original entry into SDB, in late 2004, was an uphill battle. The firm's Asian arm, Newbridge Capital, thought it had clinched a deal in late 2002 to buy a 17.8% interest in the bank from government shareholders and assume operating control. SDB even allowed Newbridge to install an eight-person "transition management committee" to oversee it. In May 2003, however, after some Chinese shareholders and officials raised objections, SDB scuttled the deal and ejected the overseers.

Lawsuits flew. But Newbridge finally got the go-ahead from SDB and the authorities and late in 2004 paid $150 million for the 17.8% stake.

As it had demanded all along, Newbridge obtained decision-making control. It marked the first time a foreign investor was allowed to lead a Chinese bank.

TPG, a San Francisco- and Fort Worth-based firm known for buying and turning around weak performers like Oxford Health Plans Inc. and Burger King Corp., had its work cut out for it at SDB. The bank's balance sheet was fraught with bad loans, its capital asset ratio was perilously low and its growth had stalled.

The investment firm revamped the bank's leadership, installing Frank Newman, a former U.S. deputy Treasury secretary and ex-president of Bankers Trust Corp., as SDB's chairman and chief executive in May 2005. Over four years, SDB's deposits and loans doubled, its equity jumped and its capital asset ratio quadrupled, while its nonperforming loans fell by more than 90%.

In a speech earlier this year, Newman, after ticking off improvements in risk management, training, operations and internal controls, lauded Newbridge as the "major catalyst" of the bank's revival.

In late 2007 and early 2008, Newbridge injected $200 million more in SDB, buying two batches of warrants. According to a person familiar with the deal, Newbridge funded much or all of its warrant purchases with borrowings.

In June, the sponsor maneuvered itself within reach of a spectacular reward by arranging to sell its stake to China's second-largest insurer, Ping An Insurance (Group) Co. of China Ltd., for $1.68 billion.

If the sale goes through, Newbridge will rake in nearly a ninefold profit on its $150 million equity outlay, assuming it leveraged its purchase of the warrants.

That lucrative outcome also assumes Newbridge will be allowed to take its profit in cash. But opposition to its doing so is building in China, according to a report in the Financial Times, with some local officials fearing they'll be blamed for Newbridge's windfall by selling too cheaply to it in 2004. Newbridge, the FT says, may be pressured to swap its SDB stock for a continuing equity stake in Ping An.

This is hardly a surprise, considering the hoops the Chinese forced Newbridge to jump through before allowing it to buy into SDB nearly five years ago.

Whenever and however Newbridge may exit its stake in SDB, it should come away with an abundant profit that's abundantly deserved.

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