The Industrial and Commercial Bank of China Limited (ICBC) is attempting to buy out minority shareholders in the Industrial and Commercial Bank of China (Asia) (ICBCA) in a deal estimated to be worth HK$10.8 billion ($1.4 billion).
ICBC owns 73% of ICBCA, which is its Hong Kong listed unit. It is offering the remaining 27% minority shareholders HK$24.95 a share which is a 28% premium to ICBCA’s last traded price on July 26 before it was suspended from trading on July 27. The price also represents a 41% premium over the average closing price for the 30 trading days up to and including July 26, and a 49% premium over the 90-day average. The offer price is 2.14 times the 2009 book value per share of ICBCA.
ICBC has been on a buying spree in the recent past as it uses M&A to grow its international presence. The Chinese lender has acquired businesses in Thailand, Indonesia, Macau, South Africa and Canada. One of the reasons ICBC has cited for the take private is to facilitate transfer of capital from ICBC to ICBCA, presumably to fund its overseas growth ambitions. ICBC has said it may make a rights issue or curtail dividends in the event the take private is unsuccessful.
“While ICBCA is currently trading at its recent high, we believe further growth of the business may be limited by its status as a listed company in Hong Kong,” said ICBC in a statement. “After ICBCA has been privatised, it will have much greater flexibility to take advantage of ICBC’s resources as the business continues to develop in the coming years.”
ICBC is being advised on the deal by ICBC International and Goldman Sachs, which is the only outside adviser on the billion plus dollar delisting. Goldman Sachs is reaping the benefits of a sustained focus on managing its relationship with ICBC. Goldman invested $2.58 billion in ICBC before the Chinese bank's initial public offering in October 2006. Goldman and ICBC also already had in place a strategic cooperation agreement focused on sharing global best practices in areas such as credit, market and operational risk management, corporate governance, corporate and investment banking and asset management.
The lockup on 20% of Goldman’s holding in ICBC expired in April 2009; Goldman sold these shares in June 2009, booking a healthy profit, however did not hurt its relationship with ICBC in the process. Goldman still owns approximately 13.6 billion ICBC shares, representing 16% of ICBC’s H-share capital; the lock up on these shares expired on April 28 this year.
ICBC itself is seeking shareholder approval on September 15 for a rights issue of up to Rmb45 billion ($6.6 billion). The government controls about 35.4% of ICBC through state-owned investment company Central Huajin Investment. The H-share portion of the ICBC rights issue will be fully underwritten and BNP Paribas, BOC International, UBS and ICBC International are working on the H-share offering. Goldman is missing from the line-up of advisers, sources explained earlier, because ICBC preferred not to mandate any of the banks who worked on the H-share portion of Agricultural Bank of China's IPO. However, Goldman’s sole advisory role on the delisting confirms that its relationship with ICBC is intact.