Standard Bank's Craig Bond on Sino-Africa financing

Standard BankÆs China chief executive Craig Bond discusses the surprising popularity of infrastructure finance and the bankÆs trade services in China.

Say "Standard Bank" in Asia and most people think you mean Standard Chartered -- a common misconception that Craig Bond, chief executive of Standard Bank in China, is keen to correct. While the institutions do have a common heritage, South Africa-based Standard Bank is determined to become the go-to bank for transactions between Africa and Asia.

"During the first six months in China, no one knew who we were; we were always asked 'do you mean Standard Chartered?'" said Bond. "Now it's 'oh Standard Bank, the African bank.'"

Standard has spent the better part of the past two years, since the Industrial and Commercial Bank of China (ICBC) took a $5.5 billion equity stake in it, building on its name. Last month, it signed a $1 billion loan facility with four Chinese financial institutions (Bank of China, China CITIC Bank, China Development Bank and ICBC Macau) and in May the bank joined ICBC in arranging a $1.6 billion financing for a power plant in Botswana -- the first completed African infrastructure financing solution to come out of China.

"We want to move from being a trading bank, which is really what we have done before, to a full-service Asian investment bank," said Bond, adding that infrastructure finance has proved the bank's most popular offering in China.

"The big short-term needs in Africa are around project finance, and big Chinese contractors want to win tenders there and they need assistance and advice on how to do that," said Bond. "This came as a surprise to us."

Over the past few years, China has provided billions of dollars to African infrastructure projects in what many have called an exchange for natural resources rights. While this is undoubtedly true in certain cases, Bond said he sees different factors driving China's interest.

"China is looking to refresh the infrastructure of Africa with the long-term view that, with good infrastructure, economies will be able to prosper and create a new market for Chinese goods," he explained. Of course, with so many Chinese companies bidding in tenders for those projects, the support is not completely selfless.

While project finance stands out for Standard in China, the core of its business is still trade. However, this presents its own difficulties. "The challenge that one finds with China in particular is that the trade requires quite a complex structure because it's often for take-offs that haven't been mined yet," said Bond. "While there will always be the regular trade services business, we're often not looking at vanilla transactions. Chinese customers are asking us to come up with clever derivative strategies, hedging methodologies and futures transactions."

Standard has both a traditional trade services team to handle letters of credit and other vanilla transactions, and a structured trade team to work on more complex solutions.

According to China's Ministry of Commerce, Sino-African trade totalled $106.8 billion in 2008, up more than 10-fold from $10 billion at the beginning of the decade.

From Bond's vantage point, he has a good view of Chinese interest in Africa. "Just in the last six weeks, there has been quite a big demand on our trade advisory services to start putting the funding and processes in place to fund big resources trade flows from Africa to China," he said. While short on details, he said deals in the works include oil and gas, iron ore and copper, and mandates to search for platinum and various nuclear resources.

According to Bond, Standard is well placed to help Chinese, and Asian, companies search for resources in Africa because of its connections with "juniors" -- newer mining companies that don't have the scale of the BHP Billitons or Anglo-Americans of this world but still have access to abundant resources.

Looking ahead, the bank wants to expand its emerging market footprint and has its eyes set on the Bric (Brazil, Russia, India and China) countries. In addition to its China business, Standard received approval last month to acquire a 33% stake in Russian investment bank Troika.

"There are probably two countries where we'd like to do bigger things in the future, those being Brazil and India," said Bond. "The reality is we have decided to bed down our Troika relationship, make sure our Nigerian operations continue to prosper and continue on our China strategy. At this point, India is going to take some time."

He explained that some of the $1 billion the bank recently raised in China has gone to expansion in Brazil and India, including the hiring of top investment bankers to target infrastructure and structured trade finance in Brazil.

In Asia, Standard is active outside of Greater China with offices in Kuala Lumpur, Singapore and Tokyo. It is also eyeing expansion opportunities in resource-rich countries such as Indonesia.

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