China Bank Buying Binge Heats Up
Note: After first publishing this post, CCB formally announced it will purchase 76 percent of BicBanco for 13.6 billion Brazilian reais ($720 million). To view the announcement, click here.
After living in China for a while, one comes to realize that new trends among big state-owned enterprises often happen quickly and in waves in response to directives from Beijing. That looks like the case among the nation’s big 4 lenders, with word that China Construction Bank (CCB) (HKEx: 939; Shanghai: 601939) is in late stage talks for its first major global acquisition of a bank in Brazil. CCB’s sudden interest in global acquisitions comes just weeks after another domestically-focused big 4 lender, Agricultural Bank of China (AgBank) (HKEx: 1288; Shanghai: 601288) was also reportedly in talks to buy Hong Kong’s Wing Hang Bank (HKEx: 302)
As I said above, this kind of sudden rush to make overseas acquisitions is hardly ever coincidence when it comes to big state-run companies in China. Instead, I suspect that central officials in Beijing are quietly urging all of the country’s big 4 lenders to expand overseas through this kind of new acquisition. Perhaps part of the reason is to divert attention from the banks’ problems at home, where each is facing growing bad loans as the domestic economy slows. But Beijing may also be hoping to prepare these banks for increased competition in their highly protected home market, since most overseas markets are far more open and competitive than China’s.
Whatever the reasons, I do suspect we’ll see quite a few more overseas acquisitions by China’s big 4 lenders in the next 2-3 years, with Southeast Asia, Latin America and BRICS countries as the most likely hunting grounds. CCB’s acquisition target is in one such market, Brazil, where it is reportedly in late-stage talks to acquire Banco Industrial e Comercial SA (BicBanco) (Brazil: BICB4), which has a current market value of about $780 million. (English article) Rather than target a healthy bank, CCB seems to be setting its sights on a local lender that has been hamstrung by bad debt, according to the reports.
Perhaps not coincidentally, news of CCB’s Brazilian foray came the same day that the bank formally launched its European headquarters in the financial center of Luxembourg. (English article) These 2 moves mark a series of sudden big steps onto the global stage by CCB, which was the least active of China’s big 4 lenders outside their home market. AgBank was also largely inactive outside China, but reports emerged in September that it was one of several bidders seeking to buy Hong Kong’s Wing Hang. (previous post)
Among the big 4 banks, leading lender ICBC (HKEx: 1398; Shanghai: 601398) has been the most aggressive outside China, making a steady series of acquisitions and other strategic moves in most major markets over the last 3 years. In the latest of those, ICBC was in talks to buy the London-based commodities and forex trading business of Standard Bank, its main partner in Africa. (previous post) The fourth of China’s big 4 lenders, Bank of China (HKEx: 3988; Shanghai: 601988), has also been relatively aggressive on the global stage, but hasn’t made any major acquisitions to date.
So, what do I think of the big 4 banks’ overseas strategies so far? Based on what we’ve seen, I have to say I like ICBC’s strategy the most, as it has formed several key partnerships with strong local players before moving into new markets. It has also targeted relatively healthy banks for its acquisitions. Bank of China’s strategy of growing organically and through smaller purchases looks a bit too conservative and is unlikely to produce major new business anytime soon.
Among the 2 latecomers, AgBank’s strategy looks the best to me as it focuses on a healthy bank in Hong Kong, which looks like a good stepping stone between China and the rest of the world. This new deal by CCB looks the least attractive, as BicBanco will not only take the Chinese lender far from its home market, but could also provide headaches due to its own bad loan problems.
Bottom line: China’s banks are likely acting on a new Beijing directive to expand globally, which could result in a multibillion-dollar buying spree over the next 2-3 years.
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