Industrial and Commercial Bank of China Limited (ICBC) will buy a controlling stake in BEA Canada from The Bank of East Asia (BEA) and sell its portion of ICEA Finance Holdings to the same bank.
China's largest bank, ICBC, will buy 70% of BEA Canada for C$80.25 million ($73 million). The remaining 30% will continue to be owned by BEA. Twelve months after the deal closes, ICBC will have an option to call a further 10% stake in BEA Canada, while BEA will have an option to put its remaining shares to ICBC. The price of the call and put options were not disclosed.
BEA Canada has been operating in Canada since 1991. It currently has six branches in Toronto and Vancouver, catering primarily to the Chinese communities. At the end of 2008, BEA Canada had assets of C$556 million, loans of C$444 million and deposits of C$482 million.
Simultaneously, BEA will acquire a 75% interest in ICEA Finance Holdings from ICBC for a total consideration of approximately HK$372 million ($48 million), making the Hong Kong brokerage a wholly owned subsidiary.
BEA and ICBC acquired the Asian equity and corporate finance business from NatWest Markets, the capital markets division of NatWest, in 1998. It is currently 75%-owned by ICBC and 25%-owned by BEA and operates in securities broking, underwriting, margin financing and futures and options dealing services. ICEA had net assets of HK$451 million on December 31, 2008.
ICBC's chairman Jiang Jianqing termed the deals a win-win for both parties and highlighted that BEA Canada will provide a platform for ICBC to establish its banking business and customer base in Canada, and subsequently across North America. He added that the sale of ICEA will streamline ICBC's structure in Hong Kong and allow ICBC to focus on its own Hong Kong investment banking business.
The deals are subject to regulatory approvals in China and Canada.
ICBC has been expanding overseas since 2006. It started with a small acquisition in Indonesia, then spent $590 million in 2007 to buy an 80% interest in Seng Heng Bank in Macau. Last year ICBC forked out $5.4 billion to buy 20% of South Africa's Standard Bank, in the largest cross-border acquisition to date by a Chinese bank.
The deals with BEA follow days after Goldman Sachs offloaded 3.03 billion shares in ICBC, representing about 0.9% of the bank's total share capital, for $1.9 billion. The US bank still owns approximately 13.6 billion ICBC shares, which are locked up until 2010, valued at around $9 billion based on current market prices. Goldman Sachs held out longer than ICBC's other pre-IPO investors Allianz and American Express which sold a combined 1.2% shareholding in ICBC in April.
Goldman Sachs and ICBC continue to have a strategic cooperation agreement to share best practices in areas such as credit, market and operational risk management, corporate governance, corporate and investment banking and asset management.
ICBC's share price closed down 3.3% at HK$13.52 yesterday. BEA's shares also lost ground yesterday, though less so than ICBC, closing down 1.1% at HK$27.45. Hong Kong stocks were generally weaker yesterday as investors were taking profits.