ICBC buys entry to Argentine market

ICBC shells out $600 million for an 80% interest in Standard Bank Argentina and two affiliates, in the first deal that sees a Chinese lender venture into Latin America.

Industrial & Commercial Bank of China (ICBC) said on Friday it had struck a deal to buy a controlling interest in Standard Bank Argentina as well as some other related assets in the Latin American country for $600 million.

China’s biggest lender is buying 80% equity ownership of Standard Investments, Inversora Diagonal and Standard Bank Argentina, which is a full-service bank that has been operating since 1917. It offers products and services through 103 branches in Argentina, which will add to ICBC’s network of 16,227 outlets in China and 203 overseas at the end of last year. Standard Investments is an Argentine fund management company. Inversora Diagonal is an Argentine commercial service provider.

The Standard Bank Group, South Africa’s biggest bank, operates in 17 countries in Africa and 13 in the rest of the world. Since 2008, ICBC has been a 20% shareholder in the group, in a deal that was struck with the intention of creating a banking partnership between Chinese and African banks.

Standard Bank has operated in Argentina for more than 12 years. It explained in a communication to investors that the Argentine operations, while profitable, are the group’s only universal banking operation outside of the African continent. It is now enhancing its focus on Africa, which means the Argentine business does not fit the group’s long-term focus.

Standard Bank Group owns 75% of Standard Bank Argentina and 70% of Standard Investments and Inversora Diagonal. The rest of the shares in each company are owned by local Argentine partners, who will also sell their shares to ICBC. ICBC will buy a 55% stake in Standard Bank Argentina and a 50% stake in the two affiliates from Standard Bank Group. Standard Bank Group will retain a 20% shareholding in all three entities and will have the option to put the remaining shares to ICBC at any time between two and seven years after the deal for ICBC to buy 80% is concluded.

Further, $100 million worth of new shares will be issued to ICBC and Standard Bank Group on closing, to provide capital for ICBC to grow the Argentine businesses.

No formal auction was held by Standard Bank for its Argentine assets, however, the market has been aware for some time that the South Africa-based firm is looking to dispose of non-core assets, according to a source close to the transaction.

“Expanding into the South American market is an important component in the bank’s globalisation strategy,” said ICBC in its filing to the Hong Kong stock exchange. “The acquisition of the interest in Standard Bank Argentina would complement the bank’s overseas institutions, strengthen the bank’s branch and business network in Latin America, enhance the bank’s operation capability in America and better contribute to the fast-growing bilateral trade relations between China and Argentina." The deal follows other similar moves by ICBC to expand overseas into countries where it can follow its customers. In 2009 ICBC bought a controlling stake in BEA Canada from The Bank of East Asia (BEA). The Chinese bank followed this move earlier this year with a deal to buy BEA's US unit.

The proposed transaction will further enhance the [Standard Bank] group’s relationship with ICBC and provide ICBC with an entry point into Argentina as the first Chinese bank to operate there, despite China being Argentina’s second largest trading partner,” said the South African lender in a filing to the stock exchange in Johannesburg. “The group’s remaining 20% shareholding will provide a continuing platform for the group to connect Argentina to Africa and other selected emerging markets (including Brazil and China),” it added.

The management of the Argentine firms is a critical part of the deal for ICBC, added the source, who declined to share details of lock-ups agreed by key management.

The deal is subject to customary approvals including approval by the Chinese Banking Regulatory Commission, clearance by the State Administration of Foreign Exchange of China and approval by Argentine regulatory authorities, including the central bank. It is expected to close in the first half of 2012.

Credit Suisse advised ICBC on the deal, which is the first foray by a Chinese bank into Latin America. The Swiss bank displaced Goldman Sachs who worked with the Chinese bank on the investment in Standard Bank. Goldman did however have a role on ICBC's delisting of its Hong Kong unit last year. J.P. Morgan is independent financial adviser to Standard Bank Group.

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