BT: ICBC taking 20% stake in South African bank

Business Times - 26 Oct 2007

ICBC taking 20% stake in South African bank

Deal, at 36.7b rand, is biggest foreign investment in Africa

(SHANGHAI/JOHANNESBURG) China's biggest lender ICBC is to buy 20 per cent of South Africa's Standard Bank for 36.67 billion rand (S$8.1 billion) in cash, in the biggest foreign investment yet in Africa.

The move, announced yesterday, will also be the biggest overseas acquisition by a Chinese commercial bank, and comes as Beijing encourages major state firms to expand abroad, particularly in developing countries.

Industrial and Commercial Bank of China said in a statement that buying a stake in Standard Bank, Africa's biggest banking group by assets, will enable it to capitalise on the growth prospects in Africa's largest economy.

'ICBC believes the best method of capturing these growth opportunities is through a strategic alliance with a large South African bank with significant operations on the African continent,' ICBC said.

It is the biggest foreign investment yet in Africa, according to Dealogic data.

ICBC is buying an equal mix of new shares to be offered by the South African bank and existing stock from shareholders at prices that equate to a 15 per cent premium to Standard's average stock price in the 30 trading days to Oct 23.

ICBC also reported a 76 per cent jump in third-quarter profit to 22.46 billion yuan (S$4.4 billion) yesterday.

China has been pouring money into resource-rich Africa, welcomed by some but drawing criticism from Western aid groups, which say the country is turning a blind eye to misrule and corruption. China argues it is spreading prosperity in the world's poorest continent where the West has failed.

'ICBC is buying into Standard Bank because Chinese companies are swarming to Africa to do business. We want to boost our financial services, such as trade finance, to Chinese clients there,' a source familiar with the matter said.

Standard Bank, based in Johannesburg, operates in 18 African nations and 21 other countries across the world.

Its shares jumped 5.87 per cent to 117.50 rand on the news after trade resumed. South Africa's rand currency also strengthened over one per cent against the US dollar on the news.

'The rationale for Standard Bank is perhaps not quite clear. The rationale for the Chinese bank makes far more sense. It gives them access into Africa, where there are big natural resources,' said a Johannesburg analyst who asked not to be named for compliance reasons. 'From Standard Bank's perspective, they can probably spin a story about how it gives them an opportunity to roll out further in Asia. It is hard to see how this would help Standard Bank dramatically.'

ICBC, in which Goldman Sachs, Allianz Group and American Express hold stakes, will have the right to two seats on the African bank's board. Goldman Sachs advised ICBC on the deal. -- Reuters