Barclays and the state-run China Development Bank Corporation (CDB) have rewritten their long-standing partnership to include deal-making in Africa, providing further evidence of China's ambitions on the continent.
Their wide-ranging agreement covers cooperation globally in training and development, corporate and investment banking as well as retail banking, the two said on Wednesday.
Chinese banks have been expanding rapidly across Africa in recent years providing corporate loans and infrastructure financing. Their progress has been underpinned by ballooning trade flows and China’s status as Africa’s largest trading partner.
Last year Sino-African trade surpassed $200 billion as Chinese companies scooped up resources ranging from oil in Angola to copper from South Africa. In a recent state visit President Xi Jingping promised billions' more dollars of investment.
As a result Chinese banks have started to challenge the traditional dominance of European lenders in Africa, including Britain’s Standard Chartered and HSBC, say banking consultants.
Chinese banks are bolstering their presence through mergers and acquisitions as well as local partnerships. ICBC acquired 20% of South Africa’s Standard Bank in 2008 while Bank of China signed a cooperation agreement with Togo’s EcoBank.
One brake on their ambitions has been the China Banking Regulatory Commission’s cautious stance given Africa’s large informal economy, lack of financial infrastructure and the need for alternative payment and distribution methods, as well as occasional civil instability.
Barclays is looking to provide CDB, one of China's three policy banks, with that on-the-ground network to help it and its clients find business opportunities. To ease communication problems the British bank has also been hiring mandarin speakers for its African branches to help Chinese clients do business.
Barclays is the second-largest commercial bank in Africa by assets behind South Africa’s Standard Bank with 1,000 branches in 13 countries. Barclays was also No. 1 by investment banking revenues in Africa during 2013, according to Dealogic data.
To be sure, there is no obligation for CDB to hand advisory mandates to Barclays and such cross-border tie-ups around the world have often floundered.
Road to Africa
Many Chinese banks are following their clients who are hunting for raw materials globally to process back home. Chinese interests in Africa have grown so rapidly they have sparked protest from the seizure of a Chinese-owned coal company in Zambia to attacks on Chinese gold miners in Ghana.
CDB has paved the way for many Chinese companies – it has already extended some US$25 billion of loan commitments across Africa. Those loans have in large part been long-term financing for Chinese construction companies building roads, bridges and airports.
The government-owned bank, which has US$1.3 trillion of assets, more than the World Bank's and IMF’s balance sheets combined, has financed about 40% of China’s outbound M&A transactions. About a quarter of its assets are in foreign-currency loans.
Despite its size it only has one off-shore branch in Hong Kong to help service those loans.
“That’s where we come in,” said Philip Tsao, head of global finance and risk solutions for Greater China at Barclays.
Chinese companies doing business in Africa generate revenues in local currencies while their borrowings from CDB are in US dollars, so they need hedging and spot-transaction needs. The corporates may also need to open local-currency accounts.
“This is the low-hanging fruit,” said Tsao. Barclays is also hoping to capture more offshore financing work and M&A cross-border advisory mandates from CDB and its clients. Barclays has already advised on five offshore renminbi bonds issued by CDB, including a 15-year and a 20-year bond in 2012.
Laying the groundwork
CDB and Barclays have been discussing how to enhance their partnership since July last year when the UK bank’s group chief executive Antony Jenkins met with CDB’s chairman Hu Huaibang.
Both were new to their positions and were keen to upgrade the partnership. Jenkins took on his role in 2012 and Hu joined CDB in 2013. The two leaders’ initial meeting prompted about 30 meetings between different departments at the two banks to further hammer out plans.
The resulting memorandum of understanding replaces prior agreements in 2007 when CDB bought about 3% of Barclays for GBP1.5 billion. The Chinese lender invested another GBP136 million in 2008. CDB still owns 1.09% of Barclays.
Since 2007 Barclays has given on-the-job training to about 30 CDB staff annually as the Chinese bank prepared to expand overseas. “The idea of the new MOU was raised by the people who were trained by us,” said Tsao.
Barclays and CDB International, CDB’s Hong Kong based investment arm, have also signed a separate memorandum of understanding in relation to investment opportunities for CDB outside of China. “We’ll show them targets and ideas,” said Tsao.
But the area likely to generate most business is Africa.
“The speed of growth in Africa means our cooperation will be meaningful in terms of revenues,” said Tsao.
