China banks shop abroad unlikely to clinch big deal
HONG KONG/SHANGHAI, Nov 17: Flush with cash and swaggering with world-beating valuations, China’s financial firms are scouring the globe for acquisitions but are more likely to settle for small stakes in big, established rivals.
A lack of market-based management expertise, as well as political sensitivities — especially in the United States — mean Chinese buyers are not expected to splash out on blockbuster takeovers of western rivals.
China CITIC Bank Corp, owned nearly 5 per cent by Spain’s Banco Bilbao Vizcaya Argentaria, is in talks for a stake in a European bank, while Bank of Communications is in negotiations to buy into an Indonesian bank, sources familiar with the situations said.
Industrial and Commercial Bank of China, the world’s most valuable bank, last month agreed to pay $5.6 billion for 20 per cent of South Africa’s Standard Bank and is in negotiations for a Vietnamese bank stake, other sources said.
“It’s unlikely we will see a 100 per cent acquisition of a large financial institution in the US or Europe,” said Richard Gibb, head of the Asia Pacific financials group at Merrill Lynch.
“More likely are transactions that involve control or substantial positions in institutions based in Asia, or significant minority positions — up to 20 per cent — in more developed markets,” said Gibb.
Excess capital and high stock prices mean mainland institutions are eyed as potential rescuers of western peers beset by the subprime mortgage crisis.
For example, Bank of China and ICBC were separately asked to join a possible bid for a stake in the UK’s troubled Northern Rock, sources in China said.
European and Asian firms are seen to be more open to Chinese investment than their US counterparts, in part due to potential political opposition in the United States, where ICBC and China Construction Bank have been frustrated in their attempts to win approval to open branches.
Beijing is still smarting from Washington’s opposition in 2005 to CNOOC Ltd’s bid for US oil firm Unocal.
“As we have seen in other sectors in the United States, issues have been raised really for political purposes, perhaps, as opposed to more fundamental economic purposes,” said Elaine LaRoche, an independent director of China Construction Bank.
“But I think that Treasury Secretary Paulson has done a lot to try and foster the Chinese dialogue and to develop on a more constructive basis the relationship between China and the US, especially in financial and commercial sectors.”
One investment banker said that China Construction Bank, ICBC and China Merchants Bank were the most likely overseas acquirers among China’s big lenders.
“I think the targets are any big bank in the world that’s going to come under stress as a result of crap on their balance sheet over the next 6 to 12 months,” the banker predicted.
Wall Street’s ailing Bear Stearns last month struck a $1 billion equity swap with China’s CITIC Securities.
Meanwhile, China Jianyin Investment Securities, controlled by an arm of China’s central bank, has been said by industry sources to be eyeing a potential tie-up with a major global brokerage, possibly the subprime-battered Merrill Lynch.
China, whose huge state-run banks were as recently as five years ago regarded as insolvent by Western standards, has made no secret of its global financial ambitions.
“The banks are following their clients. They are also looking at the Middle East, as well as additional developing countries,” said Robert Dodds, HSBC’s head of China M&A. “These banks have money, and the deals tend to be big.” Beijing is looking abroad in part to deploy excess capital.
China Investment Corp, the new $200 billion sovereign fund, invested $3 billion in the IPO of buyout firm Blackstone Group, for example, while China Development Bank bought a $3.14 billion stake in Barclays Bank.—Reuters
