ICBC Boosts Europe Presence With Standard Bank Buy
The Year of the Snake is ending with a bang for outbound Chinese M&A, with word that leading lender ICBC (HKEx: 1398; Shanghai: 601398) is buying a controlling stake of the European trading unit of South Africa’s Standard Bank for $765 million. This year-end mega-deal comes the same day as another blockbuster deal was announced, which had PC giant Lenovo (HKEx: 992) saying it would buy faded cellphone titan Motorola for $2.9 billion. (previous post) But these 2 deals don’t really share very much besides the fact that both are large outbound purchases by Chinese companies, and I have to say the ICBC deal easily looks like my favorite among the pair.
This latest deal will see ICBC pay the $765 million for 60 percent of Standard Bank’s global markets unit, which is based in London and focuses on trading in commodities, debt and foreign exchange. (company announcement; English article) ICBC will receive a 5-year option to boost its stake in the unit by another 20 percent for $500 million. If ICBC exercises that option, then Standard Bank would have the right to require ICBC to buy the remaining 20 percent of the unit for another $600 million.
That means ICBC could ultimately end up paying nearly $2 billion to acquire the unit outright, making it one of its largest deals after its landmark purchase of 20 percent of Standard Bank for $5.6 billion back in 2007. ICBC has used the partnership to develop not only its Africa business, but also expand into other global markets. That includes its purchase of 80 percent of Standard Bank’s Argentina subsidiary for $600 million in 2011.
The London purchase is just the latest global move for ICBC, which has embarked on an aggressive worldwide expansion over the last 3 years. Most recently it was in the headlines in November when it issued a 2 billion yuan ($330 million) bond in London, the first such bond in Europe’s financial capital. (previous post) Around the same time, ICBC was also designated by the Financial Stability Board as one of the world’s important systemic banks, known more commonly as the “too big to fail” designation.
Many of ICBC’s latest moves have been in Europe, including this purchase of Standard Bank’s trading unit, which was first rumored last year. (previous post) Before that, ICBC was more focused on developing markets, expanding in Africa through its partnership with Standard Bank while purchasing assets and opening new branches in Southeast Asia, the Middle East and Latin America.
ICBC hasn’t been China’s only bank that is expanding globally. Bank of China (HKEx: 3988; Shanghai: 601398) and China Construction Bank (HKEx: 939; Shanghai: 601939), 2 of the nation’s other big 4 lenders, have also made big global moves lately, including the former’s announcement in November that it would purchase control of a Brazilian bank for $720 million.
But ICBC has certainly been the most aggressive of the big 4 in going abroad. I personally find its acquisition strategy to be quite focused, and would wager that it could become China’s first truly global bank within the next decade, competing for international business with current leaders like HSBC (HKEx: 0005; London: HSBA), Citibank (NYSE: C) and JPMorgan Chase (NYSE: JPM).
More broadly speaking, ICBC’s deal, combined with recent signals from the other big lenders, indicate that 2014 could see an acceleration of purchasing by Chinese banks abroad. We could even see Agricultural Bank of China (HKEx: 1288; Shanghai: 601288), the only big 4 bank that has yet to make a major global purchase, make its first big move outside China. I would expect the 4 to focus on assets in developing markets like Southeast Asia, Africa and Latin America, as well as distressed assets in European markets like Spain and Portugal. We can probably expect to see 4 or 5 major deals during the year, with 1 or 2 topping the $1 billion mark.
Bottom line: ICBC’s latest European purchase signals that outbound M&A by Chinese banks will accelerate in 2014, with a focus on developing markets and distressed European assets.
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