27 August, 2010

China Bank Mergers & Acquisitions (Industrial & Commercial Bank of China)

Photo: An Industrial & Commercial Bank of China (Canada) branch in the Toronto suburb of Markham, Ontario.

Industrial and Commercial Bank of China Ltd. (中國工商銀, 中国工商银行)

The Industrial and Commercial Bank of China (ICBC) was created out of the People’s Bank of China (the central bank) in 1984. As its name suggested, the bank has a focus on financing China’s industries and commerce, though it also serves a huge number of individual customers through its extensive branch network.

In 1992, ICBC established its first overseas subsidiary in Singapore, followed by its first European office in London in 1995. In 1997, the bank launched its popular “95588” nationwide telephone banking platform.

Under Communist China’s state-control, bureaucracy and corruption was common in all Chinese banks. Regulatory and managerial reforms since the 1990s, however, have slowly transformed them towards more market-driven and risk-conscious enterprises.

In order to prepare ICBC for its initial public offering (IPO), the Chinese government injected USD $25-billion into the bank in 2005 to raise its Tier 1 capital level to international standards. On 2006-10-27, the floating of ICBC in Hong Kong and Shanghai made history as the world’s biggest IPO up to that point. ICBC was also the first company ever to float its class "A" and class "H" shares simultaneously. Class "A" shares are listed on the Shanghai stock exchange in the Chinese currency Renminbi (CNY), and can only be held by Chinese citizens. Class "H" shares are shares of Chinese companies listed on the Hong Kong stock exchange, which are traded in Hong Kong dollar (HKD), and can be bought and sold by Hong Kong and international investors.

ICBC's IPO had initially called for a sale of 13-billion "A" shares and 35.4-billion “H" shares, for a total of 48.4-billion shares to raise HKD $148.6-billion (USD $19.12-billion). Due to overwhelming demand for the stock, the over allotment (called "greenshoe") option was exercised in both Hong Kong and Shanghai in November 2006, bringing the total number of shares floated to 14.95-billion "A" shares and 40.7-billion "H" shares, for a total of 55.65-billion shares, raising the IPO size to HKD $170.8-billion (USD $21.97-billion). The ICBC IPO surpassed the old world record held by Japan's NTT Mobile Communications, which raised USD $18.40-billion in 1998.

The Hong Kong portion of ICBC's IPO attracted more than 977,000 individual retail applicants, or about 1 in 7 of the population. As retail investors subscribing to an IPO in Hong Kong must fully pre-pay the value of the shares at the time of application, the massively over-subscribed IPO apparently locked up HKD $420-billion (USD $53.9-billion) of funds for a few days.

As of 2008, ICBC served more than 193 million individual and business clients through more than 16,000 branches and 385,000 employees.

Recent transaction(s):

  • In April 2000, ICBC agreed to buy 53.24% of Union Bank of Hong Kong Ltd. for HKD $1.80-billion (USD $231-million). ICBC also agreed to launch an unconditional offer for the remaining shares held by the public. By the time the offer expired, 70% of the shares were tendered, raising ICBC's total purchase price to HKD $2.37-billion (USD $304-million). Founded in 1964, Union Bank of Hong Kong had 22 branches within the territory, and one overseas branch. After closing, Union Bank of Hong Kong was renamed ICBC (Asia), and 30% of its equity remained listed on the Hong Kong stock exchange.
  • In 2004, ICBC's Hong Kong subsidiary ICBC (Asia) bought Belgian Bank from Fortis S.A./ NV for HKD $2.16-billion (USD $278-million). Belgian Bank was the Hong Kong retail banking operations of Fortis S.A./ NV. Fortis retained a 9% stake in the enlarged ICBC (Asia) following the sale of its 22-branch Hong Kong network.
  • In 2005, ICBC (Asia) bought Shenzhen-based China Mercantile Bank for HKD $749-million (USD $96-million) from ICBC. ICBC (Asia) acquired China Mercantile in order to obtain a banking licence to conduct Renminbi (China’s currency) business in Shenzhen.
  • In 2006, ICBC acquired 90% of PT Bank Halim Indonesia, a tiny bank with 12 branches and only USD $50-million in assets. Terms of the deal were not disclosed. The purchase, while symbolic in nature as the first foreign acquisition outside of China/Hong Kong for a Chinese bank, was not expected to have any material impact on ICBC's earnings. China's enterprises are sometimes known to make foreign acquisitions for "pride."
  • In 2007, bought 79.93% of Macau (Macao)'s Seng Heng Bank for MOP 4.68-billion (Macao patacas, or HKD $4.55-billion, USD $583-million) from majority shareholder casino tycoon Sir Stanley Ho.
  • In 2007, ICBC subscribed to a new share issue representing 20% of South Africa's Standard Bank Group Ltd. for ZAR 36.7-billion (USD $5.46-billion, HKD $42.32-billion, CNY 40.95-billion). Standard Bank is Africa's largest bank group and has operations in 18 African countries and 19 countries outside of Africa. It operates 713 branches in South Africa and another 240 in the rest of Africa.
  • Also in 2007, ICBC bought the 8.23% stake in ICBC (Asia) held by Belgium's Fortis S.A./ NV for HKD $1.92-billion (USD $ 246-million). With the latest acquisition, China's ICBC raised its stake in its Hong Kong unit ICBC (Asia) to 71.21%. Fortis acquired the 8.23% stake in ICBC (Asia) in 2004 when it sold its Hong Kong-based Belgian Bank to ICBC (Asia).
  • In 2009, ICBC bought 19.3% of Thailand’s ACL Bank for USD $108-million (3.55-billion TBT).
  • In 2010, ICBC bought 70% of Bank of East Asia (Canada) for CAD $80-million (HKD $589-million, CNY 517-million, USD $76-million). Bank of East Asia (Canada) was the Canadian unit of Hong Kong-based Bank of East Asia. At the same time, Bank of East Asia raised its stake in joint-venture ICEA Finance to 75% for HKD $372-million.
  • In August 2010, ICBC privatized its 73%-owned Hong Kong-listed subsidiary ICBC (Asia) Ltd. by offering HKD $10.8-billion (CNY 9.45-billion, USD $1.39-billion) for the 27% stake not yet controlled.
  • In October 2010, ICBC acquired 60% of AXA-Minmetals Assurance Co. for CNY 1.2-billion (USD $179-million). AXA-Minmetals was a joint-venture between French insurance giant AXA S.A. and China Minmetals Corp., a major base metals miner. Following the transaction, AXA's stake in the joint-venture would fall to 27.5% from 51%, whereas China Minmetals' stake would fall to 12.5% from 49%. The joint venture would rename itself rather clumsily to ICBC-AXA-Minmetals Assurance Co.
  • Also in October 2010, ICBC was planning to raise up to CNY 45-billion (HKD $52.2-billion, USD $6.7-billion) from a rights issue in Hong Kong and Shanghai to replenish capital after a lending boom in 2009.
  • In January 2011, ICBC agreed to buy 80% of Hong Kong-based Bank of East Asia's American retail operations for USD $140-million (HKD $1.08-billion, CNY 922-million). The politically sensitive purchase included 13 branches in California and New York City and is subject to U.S. government approval. The purchase marked the very first time a Chinese bank has attempted to acquire a commercial banking licence in the U.S.
  • In August 2011, ICBC bought 80% of Standard Bank Argentina and its two affiliates for USD $600-million (ARS 2.49-billion, ZAR 4.31-billion, CNY 3.86-billion, HKD $4.68-billion) from South Africa's Standard Bank Group (55% stake) and other shareholders (25% stake). Before the sale, Standard Bank owned 75% of Standard Bank Argentina and 70% of the other two units. Following the sale, Standard Bank Group would retain 20% of Standard Bank Argentina, which had 103 branches. ICBC and Standard Bank would inject a total of USD $100-million of new capital into the Argentine bank based on their new ownership
  • In 2013, ICBC agreed to buy 20% of Taiwan's Bank Sinopac for TWD $20-billion (USD $606-million). However, the deal was contingent on the passage of a "cross-strait" free-trade agreement on services between China and Taiwan. The trade agreement subsequently faced severe opposition in Taiwan and was never signed. In September 2015, ICBC and Bank Sinopac announced that the purchase/sale agreement expired without closing.
  • In January 2014, ICBC bought 60% of Standard Bank of South Africa's London-based global markets business for USD $765-million (ZAR 8.64-billion, CNY 4.63-billion, HKD $5.94-billion). The deal also gave ICBC a call option to buy another 20% of the unit for five years, starting two years after the closing of the transaction.  If the call option is taken up by ICBC, then Standard Bank can exercise a put option to force the Chinese bank to purchase the final 20% of the unit.  The global markets unit provides trading and other services in foreign exchange, commodities, interest rates, debt and equity products. The division was later renamed ICBC Standard Bank.
  • In May 2016, ICBC-majority-owned ICBC Standard Bank acquired Barclays' bullion vault in London for an undisclosed amount. The bullion vault is said to have capacity for 2,000 tonnes of precious metals such as gold, platinum and silver.

Click here to return to the Index page.