From Markets page 20 issue 389 October 13 2008
Translated by Liu Peng
Original article: [Chinese]

Not all is gloom and doom for Chinese investments in foreign financial institutions--China's largest state-owned bank made millions of dollars from an investment in a South African bank in the first half of 2008.

Jiang Jianqing, board chairman of the Industrial and Commercial Bank of China (ICBC), said the bank's investment in Standard Bank (SB) last October contributed over 500 million yuan in dividends to ICBC.

ICBC's annualized return on investment (ROI) in SB for 2008 was 8.74%, markedly exceeding its 3.8% ROI in foreign currency bonds.

The ICBC stake in SB is the largest direct investment made by a foreign company in South Africa thus far.

China is one of South Africa's most important trade partners, and by 2010, the former anticipates to double its trade volume with the whole of Africa to USD100 billion.

On October 25，2007, ICBC invested USD5.5 billion to buy a 20% stake in SB. In March of this year, the two parties signed a business cooperation agreement.

For this, the two parties established a strategic team made of staff from both banks for shared projects.

Starting in the end of October, Craig Bond, who was the head of SB Africa operations, will become the managing director of the strategic partnership operations for China. Of the 20 staff he would lead at ICBC's headquarters in Beijing, one-third would come from SB.

According to the cooperative plan the two banks signed, the team will be subdivided into seven groups to manage project operation and acquisition, project financing, resource banking, cash management, global markets, bank trust business and trade finance sectors, in order to integrate with ICBC's business.

According to plan, USD2.45 billion of acquisition funds has been earmarked, with USD450 million, USD400 million and USD300 million respectively designated for Africa, South Africa and other markets.

Another USD400 million would be used to establish a joint global resource fund, jointly set up by ICBC and SB and private equity investors. The remaining USD900 million would be put towards a strategic reserve fund.

"The main job for the Beijing team in the first few months is to establish relationships with clients and arrange a work flow," said Jacko Maree, SB CEO.

"We will also set up a representative office in Beijing because we are likely to apply for a banking permit in the future, which would enable us to do some operational work," Bond said.

The EO has also learned that ICBC also would dispatch some team to SB's South Africa office to help for coordinate cooperation between the two.

Jacko Maree told the EO that he was confident that the cooperation would bring as much as USD50 million in profits to the bank in the twelve months after July 1, 2008.

SB outlined for the EO five sources of income: Sino-African commerce and trade;commercial and investment banking in Africa; resources and investment bank services targeting Chinese clients; international banking services for Chinese clients; and a global resources fund. 

The global resources fund, co-founded by ICBC and SB, would mainly take stakes in the mining, metal, oil and gas industries. Due to the mixed nature of its operation, it has been late to apply for approval from China regulatory bodies.

To lay the groundwork for such business, ICBC has introduced SB to 80 Chinese companies, and the latter is expanding business with hundreds of small-and-medium sized Chinese businesses in Africa.

Though ICBC's total market value ranks first among global financial institutions, in terms of asset and revenue structure, it is still a domestically-oriented bank. Oversea profits and assets only occupied 3% of ICBC's total profits and assets.

"ICBC is a commercial bank, not an investment one, but I believe that within five years, it will become one of the best investment banks in the world," Craig told the EO.

ICBC M&A Background:

February 1998
ICBC and the Bank of East Asia acquired the Asia operations of NatWest Securities, which had over a decade's investment banking experience in the Asia-Pacific Region, and established a new company--- ICEA Finance Holdings.

July 2000
ICBC bought up Union Bank of Hong Kong and renamed it ICBC (Asia). A year later, ICBC (Asia) was incorporated with ICBC's Hong Kong branch.

April 2004
ICBC bought in the Hong Kong-based Fortis Bank Asia from Belgian Fortis Group

December 2006
ICBC acquired Halim Bank Indonesia

August 2008
ICBC agreed to buy nearly an 80% stake in Macao-based Seng Heng Bank