ICBC Goes To Taiwan With SinoPac
Despite a number of major advances in China-Taiwan relations these last few years, one area that has yet to see much progress is M&A by Chinese companies of their Taiwanese counterparts. Chinese banking giant ICBC (HKEx: 1398; Shanghai: 601398) is aiming to break that taboo with its newly announced plans to buy 20 percent of SinoPac Financial Holdings (Taipei: 2890) for about T$20 billion, or about $680 million. (HKEx announcement; English article) Announcement of the sale came the same day that Bank of Taiwan became the first Taiwanese lender to offering direct Taiwan dollar exchange services for China’s currency, the yuan, through its Shanghai branch. (English article)These 2 developments show that links between China and Taiwan continue to improve, following the election of China-friendly president Ma Ying-jeou back in 2008. But anyone who does the math will see that Ma has been in office for more than 5 years now, following his re-election last year, meaning that reforms are only coming very slowly. M&A of Taiwan companies has been a particularly sensitive area, and while this new ICBC deal is likely to close I also wouldn’t be surprised if it eventually collapsed.
Let’s take a closer look at the deal, which would make ICBC, China’s largest bank, the first Chinese lender to purchase a major stake in a Taiwanese counterpart. SinoPac is one of Taiwan’s largest financial holding companies, and ICBC’s purchase would give it a solid foothold in the relatively small but lucrative Taiwan financial services market.
This deal could been viewed as part of ICBC’s aggressive global expansion, which has included acquisitions and opening of new offices in such diverse markets as Argentina, the United States and the Middle East over the last 2 years. But unlike those other deals where ICBC bought controlling stakes, the bank will become only a minority shareholder in SinoPac due to Taiwanese laws that limit such purchases to a maximum 20 percent stake.
This deal reminds me of another one that made headlines back in 2009, when telecoms giant China Mobile (HKEx: 941; NYSE: CHL) announced it would purchase 12 percent of FarEastone (Taipei: 4904), one of Taiwan’s top 3 mobile carriers, for about $530 million. That deal was also announced in the euphoria that followed Ma’s first election, which ended 8 years of frosty relations between China and Taiwan. But the deal was never formally approved by Taiwan regulators, and 4 years later most assume it is dead.
Even less sensitive purchases of Chinese banks by their Taiwan counterparts have been slow to happen. One of the few such deals to date has been Fubon Financial’s (HKEx: 2881) purchase last year of 80 percent of a mid-sized Chinese lender called First Sino Bank for $900 million (previous post) But Fubon has been among the most aggressive of Taiwan’s banks in China, and few if any other major purchases have been announced today.
Meantime, the Bank of Taiwan deal also marks a major step forward for China-Taiwan relations by finally allowing people in China to use their yuan to purchase Taiwan dollars without a middleman. The deal was made possible by an agreement between Bank of Taiwan and China’s central bank, the People’s Bank of China. But again, I need to point out that what seems like a relatively straightforward development has taken 5 years to achieve since cross-strait relations began to improve.
So all of that said, what are the chances of success for this latest ICBC-SinoPac tie-up, and what’s the potential for similar deals in the future? I would give this purchase a 70 percent chance of success. Unlike the China Mobile deal, which looked set to fail from the start, this purchase will probably get approved because it is actually allowable under current Taiwan law. At the end of the day, these kinds of cross-strait M&A deals will remain slow and painful for at least the next 2-3 years as China and Taiwan continue to grow more comfortable with each other.
Bottom line: ICBC’s purchase of 20 percent of SinoPac is likely close, but won’t be followed by a flood of similar cross-strait deals.
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