Date
20 October 2017
ASIFMA chief executive Mark Austen says Chinese banks want to become global investment banks on par with their foreign rivals.
ASIFMA chief executive Mark Austen says Chinese banks want to become global investment banks on par with their foreign rivals.

Chinese banks to cast net wider in 2014, ASIFMA says

Chinese banks are expected to seek more acquisition targets in the next two to three years to grow their global footprint and reduce their reliance on the domestic market, Asia Securities Industry and Financial Markets Association (ASIFMA) said.

“This is not only because the government is pushing them to go global. Chinese banks want to expand their global presence to avoid over-reliance on the domestic market,” ASIFMA chief executive Mark Austen said. “They want to become global investment banks on par with their foreign counterparts.”

Chinese lenders are buying foreign assets for their familiarity with the world market rather than developing their own expertise which takes time, Austen told the Hong Kong Economic Journal’s EJ Insight.

And this is as good a time as any to pursue such acquisition opportunities.

“Banks are generally cheaper overseas because the global financial crisis has suppressed their valuations,” he said.

Chinese lenders have been snapping up banking assets in the United States and Europe. In 2011, Industrial and Commercial Bank of China Ltd. (01398.HK, 601398.CN) bought 80 percent of the United States branch network of Bank of East Asia Ltd. (00023.HK). China Minsheng Banking Corp. Ltd. (01988.HK, 600016.CN) announced a 9.9 percent stake purchase in US lender United Commercial Bank in 2007.

In the coming years, Austen sees a trend toward Asia, with outbound Chinese mergers and acquisitions targeting regional players. “It’s unlikely Chinese banks will buy big European and US investment banks. They have no such ambitions at this time.”

ICBC plans to buy 20 percent of Bank SinoPac in the first mainland investment in a Taiwan lender. The two signed an agreement in April but the deal is pending approval by their respective governments, Taipei Times reported in June, citing Bank SinoPac chairman Paul Chiu. ICBC has acquired banks in Indonesia and Thailand.

Slower M&A trend

Meanwhile, ASIFMA executive director Vijay Chander expects overall outbound deals to slow next year due to a tight funding environment. “Outbound deals have been growing year on year, so we expect there will be a bit of a slowdown next year,” he said.

This will happen when US interest rates start to rise, funding options narrow and credit begins to tighten. He expects the situation to improve from the second half and well into 2014. By comparison, outbound deals likely grew 20 percent in the first half from the same period last year, ASIFMA said. 

Chinese firms undertook 78 outbound deals in the first half, down from 95 a year earlier as many companies took their foot off the M&A pedal to focus on their domestic operations, accountancy firm PricewaterhouseCoopers Ltd. said in August.

State-owned enterprises (SOEs) were the biggest drivers of outbound investment as they sought out materials and resources assets. Privately owned Chinese companies targeted consumer businesses, brands, know-how and technologies that could be brought back to China and put to use, PwC said in an Aug. 29 statement.

Most of the deals have been in the energy sector which will continue to dominate outbound M&As in the next five years, Chander said. “China will need to pin down resources deals in order to become energy independent.”

In February, Chinese giant CNOOC Ltd. (00833.HK) closed a US$15.1 billion takeover of Canadian oil and gas company Nexen Inc. The  acquisition gave CNOOC new offshore production in the North Sea, the Gulf of Mexico and off western Africa, as well as assets in the Middle East and Canada where it gained control of Nexen’s oil sands, according to Reuters.

Chander said this kind of acquisition shows China’s deep interest in alternative energy sources in the US and Canada where it competes for these resources with India.    

“We will continue to see more big-ticket deals in the coming years but they’re not likely to be in strategic sectors. SOEs will continue to be the largest contributor to these deals in the short term,” Chander said.

One major deal was the US$7.1 billion takeover by Shuanghui International Holdings Ltd. (000858.CN) of Smithfield Foods Inc., the world’s biggest pork processor and hog maker, in the largest acquisition of a US company by a Chinese firm.

– Contact the reporter at [email protected]

RA

Ayishah Ma is a financial reporter on Greater China issues.

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