Analysts commented favourably on the benefits that could accrue to ICBC from the expansion of its footprint to Africa, a country where China is looking to develop business as it seeks sources of raw materials.
ICBC will pay R36.7 billion ($3.1 billion), translating to a price of R136 per share to Standard Bank shareholders for shares representing 11.1% on an undiluted basis; the price represents a 30% premium to the 30-day volume weighted average price (VWAP) at which Standard Bank shares have traded on the Johannesburg Stock Exchange. ICBC will also be issued new shares representing an additional 11.1%, on an undiluted basis, for R15.9 billion ($2.4 billion) at a price of R104.58 per share, priced at the 30-day trading VWAP. At the end of the transaction, ICBC will own shares representing 20% of Standard BankÆs enlarged share capital.
As long as ICBC holds 12% or more of Standard Bank it is entitled to nominate two directors to the Standard Bank board including the vice chairman. The nominee directors will also participate in key decisions such as credit and audit.
The deal is subject to regulatory and shareholder approvals.
ICBC has a market capitalisation of $319 billion, over 16,000 branches in China, nearly 100 branches elsewhere in the world and 2.5 million corporate and 180 million personal bank customers. It was publicly listed in October 2006, raising $21.9 billion in new equity, in the largest initial share sale ever.
Goldman Sachs, Allianz and American Express acquired shares in ICBC in a pre-IPO placement in early 2006 and hold a combined 7.4% post-IPO. The three investors have committed to a lock-up until April 2009. Goldman Sachs, ICEA Capital and Linklaters advised ICBC on the acquisition of shares in Standard Bank.
ICBC, which has been seeking avenues to deploy cash, will fund the investment from its reserves. ICBC had earlier acquired Seng Heng Bank in Macau for $590 million giving it a foothold in Asia's gaming capital, but the scale of this deal, at $5.5 billion, is unprecedented for ICBC.
ôFrom a strategic perspective, ICBC has been seeking opportunities to expand its international business, in particular in Africa given strong trade linkages and the close- and long-standing friendship between China and South Africa,ö says ICBC chairman Jiang Jianqing in a written statement. ôAs many of our large clients seek investments in Africa, the demand for cross-border financial services is accelerating.ö
Standard Bank is the largest bank in South Africa with total assets of R1,088 billion as of June 30, 2007 and a market capitalisation of R145 billion. It has 950 branches and operates in 38 countries. Three institutional shareholders own a combined 30% of Standard Bank and the rest of its shareholding is widely dispersed. ICBC will be, by a wide margin, the largest single shareholder in Standard Bank after this deal. Standard Bank was advised by Deutsche Securities.
ICBC and Standard Bank have in principle agreed to being preferred mutual partners or the ôpartner of choiceö across both partiesÆ product sets.
Standard Bank Group and ICBC are also in discussion about launching a global resource fund with a capitalisation of $1 billion and a term of 10 years to be raised from investors. ICBC and Standard Bank will invest in the fund though the exact commitments are yet to be ironed out. The fund will focus on opportunities in Africa and China, specifically in the mining and energy sectors.
The ICBC announcement makes it a hat-trick for investments by Chinese banks in cross-border assets in October.
On October 9, China Minsheng Bank said it would buy 9.9% of California-headquartered United Commercial Bank, with a tentative agreement to hike its stake to 20%. Then on October 23, Citic forged a strategic partnership with Bear Stearns including $1 billion of cross-holdings and an investment banking joint venture to service Asia.
Earlier in the year, China Development Bank acquired a 3.1% stake in Barclays.
Banks in China are flush with funds partly due to the fact that the economy is registering consistent double-digit growth. Their ambitions and financial capabilities are no longer limited by the geographical boundaries of their country of origin. Acquiring minority stakes with some management rights in assets with growth prospects which diversify their own platform is a natural way forward and Chinese companies are wasting no time in seizing the opportunities which present themselves.
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