China's biggest lender ICBC is to buy 20 percent of South Africa's Standard Bank for 36.67 billion rand ($5.6 billion) in cash, in the biggest foreign investment yet in Africa.
The move announced on Thursday -- which will also be the biggest overseas acquisition by a Chinese commercial bank -- comes as Beijing encourages major state firms to expand abroad, particularly in developing countries.
Industrial and Commercial Bank of China said in a statement buying a stake in Standard Bank, Africa's biggest banking group by assets, would enable it to capitalize 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.
The group confirmed an earlier Reuters report that it will buy a large stake in Standard Bank. 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 percent premium to Standard's average stock price in the 30 trading days to October 23.
China has been pouring money into resource-rich Africa, welcomed by some, but drawing criticism from Western aid groups, who 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 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 told Reuters.
Johannesburg-based Standard Bank operates in 18 African countries and 21 other countries across the world.
Its shares jumped 5.87 percent to 117.50 rand on the news after trade resumed. South Africa's rand currency also strengthened over one percent against the 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 and increasing trade with Africa, 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, the analyst added.
ICBC, which overtook Citigroup in July as the world's biggest bank by market value, is flush with cash and eyeing expansion opportunities after raising $21.9 billion last year in the world's biggest IPO.
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.
ICBC and Standard Bank said the deal requires approval from both companies' shareholders as well as regulators in China and South Africa.
ICBC bought a 90 percent stake last December in PT Bank Halim Indonesia and agreed in August to pay $583 million for 80 percent of Macau's Seng Heng Bank.
Jiang said this month he wanted overseas business to account for 10 percent of ICBC's total revenues, up from about 3 percent now. It planned to open branches in Doha, Dubai, Moscow and Sydney, he said.
Standard Bank itself has been expanding. Since the start of 2006, the group bought control of Nigeria's IBTC Chartered Bank and most of Bank of America Corp.'s BankBoston Argentina assets.
ICBC's shares closed 0.28 percent lower at HK$6.99 on Thursday, while an index of Chinese firms listed in Hong Kong dipped 0.19 percent. The shares have risen 43 percent this year, lagging an 87 percent gain in the H-share index.
ICBC also reported a 76 percent jump in third-quarter profit to 22.46 billion yuan ($3 billion) on Thursday
Samuel Chen, a banking analyst at JP Morgan in Hong Kong, said before the news that a deal could enhance ICBC's 2008 net profit by 2-3 percent based on an assumption that ICBC takes a 20 percent stake in Standard Bank for $5.5 billion.
Earlier this week, China's CITIC Securities agreed to invest $1 billion in Bear Stearns Cos, a U.S. investment bank battered by the mortgage market slump.
(Additional reporting by Kennix Chim in Hong Kong)