Chinese bank gets approval to buy into SAfrican bank in US$5.46 billion deal

BEIJING - China's biggest bank said Sunday it has received approval to buy a 20 percent stake in South Africa's biggest lender, the latest big-ticket overseas expansion by Chinese investors.

The deal between state-owned Industrial & Commercial Bank of China Ltd. and Standard Bank Group Ltd. is one of China's biggest foreign corporate acquisitions to date.

"The Chinese Banking Regulatory Commission has approved the plan by the Industrial and Commercial Bank of China to take the stake," the bank said in a brief statement on its Web site.

The statement did not provide financial details of the deal, which was announced last year, but the official Xinhua News Agency said it was worth US$5.46 billion (?3.67 billion).

"The deal has already been approved by shareholders of both banks along with regulators in South Africa," the statement said.

The move comes amid a push by communist leaders for China's companies to expand abroad to diversify the economy. Efforts have focused on developing ties with Africa as a potential source of energy, raw materials and markets for its booming economy.

China's state-owned banks are growing rapidly amid an export-fueled economic boom and are expanding abroad to serve Chinese clients in foreign markets and to win international business.

ICBC's decision in South Africa to take a minority stake instead of acquiring a bank outright was in line with a Chinese strategy of trying to avoid possible political frictions over buying assets abroad.

Chinese companies have been skittish about acquisitions since the uproar in 2005 over state-owned oil company CNOOC Ltd.'s attempt to buy U.S. oil and gas producer Unocal Corp. CNOOC dropped its bid after American critics said it might endanger energy security.

ICBC is flush with cash to pay for foreign expansion after raising a record-setting US$21.9 billion in an initial public stock offering in October 2006.

ICBC says it has 1.1 trillion yuan (US$153 billion; ?103 billion) in assets and reported profits in 2006 of 49.3 billion yuan (US$6.8 billion; ?4.57 billion).

Standard Bank, headquartered in Johannesburg, operates in 38 countries and says it has assets of US$119 billion (?80 billion).

Beijing is encouraging Chinese companies to invest abroad in what it calls a "go global" strategy to diversify the economy and take advantage of international opportunities.

Chinese companies invested US$21 billion abroad in 2006, according to the government.

China buys 20% stake at Standard Bank. Standard Bank invest heavily in Angola, an oil-rich African country. I suspect that pieces are falling into place.

S.Africa’s Standard Bank plans Angola investment

Reuters - Thursday, January 31

JOHANNESBURG, Jan 30 - Africa’s biggest bank by assets, Standard Bank , plans to invest millions of dollars in Angola to set up a commercial and investment bank and offer retail banking services, a senior executive said on Wednesday.

Senior executives from Standard Bank, which has applied to the Angolan government to convert its current representative office into a bank, met Angolan President Jose Eduardo dos Santos in Luanda on Tuesday.

Angola is experiencing an economic boom, sparked by oil revenues from offshore fields which has made it sub-Saharan Africa’s second-biggest oil producer and the newest member of Opec.

Peter Wharton-Hood, Standard Bank’s chief executive, personal and business banking, who was in the delegation along with board member and top black businessman Cyril Ramaphosa, said the bank was looking at developing a universal bank in Angola.

“Angola is an exciting market with lots of potential, there are lots of unbanked people. Our primary interest is in developing a commercial and investment bank, we will be developing a retail offering over time,” Wharton-Hood said.

Standard Bank planned to invest about $25 million in Angola, he added.

The group said last year it aimed to become a bigger player in key African countries. In July last year, Standard Bank bought Nigeria’s IBTC Chartered Bank in a deal worth around $400 million, expanding its footprint in Africa’s most populous country.

About $450 million of the proceeds from Standard Bank’s sale last year of a 20 percent stake to China’s biggest lender, Industrial and Commercial Bank of China , would be used for growth in existing markets and investments in key markets such as Kenya, Ghana and Angola, the bank said last month.

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They look impressive now. On the other hand, China has its own financial problem of huge non-performing loans, which could bring down their economy.

I heard a story that Chinese companies make money and spend it on further expansion rather than servicing their debt. It has been going on for quite a while. While China expand outward economically, their own internal debt bomb is ticking, too. It will go off sooner or later. Then China has to pull back in order to find money to address the domestic problem.

If economy goes south, we would have twin-blowout. U.S. and China. I doubt that China is in a position to move in and take over what U.S. leave behind.

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