China’s largest bank, the Industrial and Commercial Bank of China (ICBC), has offered to purchase a 20% stake in Standard Bank, South Africa’s largest bank by assets and earnings, for US$5.5-billion, representing the largest foreign direct investment in the country to date.
The majority state-owned ICBC will pay cash for the stake, estimated at R36.7-billion, which now surpasses the R33-billion that British-based Barclays Bank paid for just over 50% of Absa Bank in 2005.
The deal is also the largest investment by a Chinese bank outside China. Of this value, Standard Bank will receive R15.9-billion in new core equity capital and existing shareholders will receive R20.7-billion.
“A partnership between Standard bank and ICBC is attractive as each party brings numerous complementary benefits to the relationship,” Standard Bank Group chief executive Jacko Maree said in a statement.
“Both banks can benefit through the creation of new revenue streams, access to the new partners’ expertise and sharing distinctive local market knowledge and expertise.”
The Standard Bank group is the continent’s largest lender, with over R1-trillion in assets (approximately $156-billion) and a market capitalisation of R145-billion ($21-billion).
ICBC is currently the world’s largest bank in terms of market capitalisation, worth some $319-billion, and has been on the lookout for overseas expansion opportunities after it raised $21.9-billion following a public listing on the Hong Kong and Shanghai stock exchanges in 2006.
In a jointly issued statement, ICBC said it views South Africa as an attractive market for investment, given its growth prospects, its sophisticated economic and well-regulated financial services infrastructure, as well as its rapidly growing banking customer base.
The best way of capturing these opportunities, ICBC said, was through a strategic alliance with Standard Bank, which has significant operations on the African continent.
“From 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,” ICBC chairman Jiang Jianging said.
“As many of our large clients seek investments in Africa, the demand for cross-border financial services is accelerating. Standard Bank, with its market leading position in South Africa and a true pan-African footprint, represents the best organization with which ICBC can partner.”
The two partners are not wasting any time in identifying joint business opportunities, stating they are discussing the launch of a $1-billion global resource fund that will focus on selected opportunities in Africa and China, specifically in the junior mining and energy sectors.
Maree said the transaction also enables Standard Bank to have preferred access to the largest and fast-growing economy in the world, along with a substantial investment from and an alliance with a leading Chinese company in South Africa.
“Standard Bank will have a strengthened position of facilitating and financing trade flows between Asia and Africa. In particular, opportunities will be enhanced for providing financial services to resource-based companies engaged with Chinese counterparts,” he said.
“An investment of this magnitude is a strong endorsement of the strength, profitability and quality of regulation of South Africa’s banking industry. It is also a meaningful validation of the position achieved by Standard Bank on the African continent.”
The transaction is subject to approval by the two companies’ shareholders, as well as gaining the necessary regulatory approval.