Regis Nyamakanga
26 October 2007
Johannesburg — THE acquisition of a 20% stake in Standard Bank by the Industrial & Commercial Bank of China (ICBC) is the clearest evidence yet by the Chinese company of its quest to expand its presence in emerging markets.
The deal also reinforces China's push into becoming the dominant economic player in Africa, where Standard Bank operates in 18 countries.
The state-controlled ICBC, which overtook Citigroup in July as the world's biggest bank by market value, is flush with cash and eyeing expansion opportunities after raising $21,9bn last year in the world's biggest initial public offering (IPO).
ICBC chairman Jiang Jianqing said this month he wanted overseas business to account for 10% of ICBC's total revenues, up from today' s 3%-4%. He planned to open branches in Doha, Dubai, Moscow and Sydney.
ICBC, which is listed in Hong Kong and Shangai, is the biggest lender in China and its R36,7bn investment in Standard Bank is the largest offshore investment by a Chinese company to date.
Jiang started its overseas drive in December, buying a 90% stake in PT Bank Halim Indonesia for 90-billion rupiah (R65m). On August 29, ICBC agreed to buy 79,9% of Macau's third-biggest bank, Sociedade de Turismo eDiversoes de Macao, for 4,68-billion patacas. Last month, ICBC said it would focus on expanding in emerging markets. The bank had 923-billion yuan ($123bn) in cash and near-cash securities at June 30. Its market capitalisation stands at $319bn.
"They have a lot of cash on their balance sheet and they need to grow globally," Binay Chandgothia, who oversees almost $1,9bn at Principal Asset Management Asia, told Bloomberg yesterday. "I'm not surprised if Chinese banks go out and buy."
"I can't think of a better timing for ICBC to make a move," said Wang Yihuan, a bank analyst at China Asset Management, which manages R28bn, including ICBC shares. "Given its dominance at home and its financial position, ICBC will have a lot of bargaining chips in negotiations."
Jiang said the deal with Standard Bank gave ICBC a platform to expand its international business, especially in Africa.
"China is moving into Africa in a big way," Ian Troost, an analyst at Metropolitan Asset Managers in Cape Town, told Reuters. "This will help raise Standard Bank's international profile, and the cash will give them a big war chest (for) acquisitions."
Standard Bank, with units in 18 countries in Africa and 21 elsewhere, is expanding outside SA, where it earns most of its profit, to tap rising trade in commodities and fees from investment banking. It has acquired banks in Argentina, Nigeria and Kenya, and has said it may make acquisitions in Russia as well as start an operation in India, the fastest-growing economy after China.
ICBC's investment in Standard Bank also underscores the growing global ambitions of China's companies. The nation, whose key stock index surged 169% this year, is now home to three of the world's five largest companies by market value.
The deal also gives credence to the perception that China is seeking to move beyond its standard strategy of the past few years of offering cheap loans in return for access to the continent's mineral wealth. It will also aid ICBC earn more revenue by financing booming trade between China and Africa, which swelled 40% last year to $55,5bn, making the nation Africa's third-largest trading partner.
Last year, China agreed to double its aid to Africa by 2009, set up a $5bn fund for investments in the continent and pledged to provide $3bn of loans over the next three years.
China has $1,43-trillion in foreign exchange reserves, a record for any nation.
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