China Bank Mergers & Acquisitions (Agricultural Bank of China)

An Agricultural Bank of China branch in the town of Chencun (陳村鎮), province of Guangdong (Canton), China.


Agricultural Bank of China (農業銀行, 农业银行)

Agricultural Bank of China (known as “ABC” in China, AgBank outside), along with the Bank of China, China Construction Bank and the Industrial and Commercial Bank of China, are the country’s Big Four state-owned commercial banks. The current Agricultural Bank of China was established only in 1979, though it refers to its earliest founding to 1951, when the People’s Republic of China (the Communist China that was established in 1949) nationalized and consolidated the Farmers Bank of China with the Co-operation Bank to create the Agricultural Co-operation Bank. Merely one year later, however, the Communist government integrated the Agricultural Co-operation Bank into People’s Bank of China, the country’s central bank.

In 1955, the government established the Agricultural Bank of China but it too was merged into the People’s Bank in 1957. The whole process of creating an Agricultural Bank only to integrate it into the People’s Bank repeated once again between 1963 and 1965.

Finally in 1979, under China’s newly-adopted “economic reform and open-door” policy, the Agricultural Bank of China was re-established once more to serve China’s rural communities. The bank’s mandate was to accept deposits as well as to finance agricultural development in China’s vast countryside.

In 1984, the bank obtained its first ever World Bank loan to promote agricultural reform. In 1994, the goal of official economic development in rural China was separated and transferred to a new bank named the Agricultural Development Bank of China (ADBC), which was launched with over CNY 259-billion in agricultural loans (assets) transferred from the Agricultural Bank of China and the Industrial and Commercial Bank of China (ICBC).

For many years, AgBank also held responsibilities of supervising the country’s rural credit co-operatives (RCC), a vast network of credit unions in the countryside. In 1996, however, the People’s Bank of China took over those responsibilities.

Under Communist China’s state-control, bureaucracy and corruption was common in all Chinese banks until the 1990s, when regulatory and managerial reform began to slowly transform them towards more market-driven and risk-conscious enterprises. In 1997, AgBank accelerated the abolishment of its policy-based lending practices. No longer would the bank offer credit based largely on the State Council’s agri-economic policies, rather, it would make lending decisions based on market conditions and expected rate of return like other commercial banks.

However, despite a decade of reforms, AgBank’s multiple billions of non-performing loans remained a major obstacle to the bank’s profitability. While three of the other Big Four state-owned banks floated their shares publicly in Hong Kong and Shanghai between 2005 and 2006, an initial public offering for AgBank had to be delayed until the bank’s capital level was more acceptable.

In late 2007, the Chinese government took over CNY 816-billion (USD $116-billion) of bad loans from AgBank at face value to improve the bank’s capital reserve. Then in October 2008, China’s sovereign investment fund China Investment Corp. further injected CNY 130-billion (USD $19-billion) into the heavily-indebted AgBank. The funding was provided by a CIC subsidiary called Central Huijin Investment Co. Ltd. Following the capital infusion, AgBank became jointly-owned by Central Huijin and the Chinese Ministry of Finance.

In 2009, the bank was formally converted into a joint-stock company with limited liability and adopted the name Agricultural Bank of China Ltd.

Following the multi-year long preparation, in July 2010, various state agencies of the Chinese government floated a 16.3% stake (47.65-billion shares) of the Agricultural Bank of China in Hong Kong and Shanghai that raised HKD $152.5-billion (CNY 127.7-billion, USD $19.23-billion). Between late July and August 2010, the bank was able to sell its overallotment shares in both Hong Kong and Shanghai, raising an additional HKD $12.17-billion (USD $1.57-billion) in Hong Kong and CNY 8.95-billion (USD $1.31-billion) in Shanghai, bringing the total IPO to a new world record of HKD $171.0-billion (CNY 151.2-billion, USD $22.1-billion).

As of 2010, Agricultural Bank’s 24,000 branches, 30,000 ATMs, 440,000 employees served more than 350-million customers.


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China Bank Mergers & Acquisitions (Bank of Communications)

Photo: A Bank of Communications branch in downtown Shanghai, China.

With special thanks to Mark Chang of New Jersey, United States, for allowing me to use his photo. You can see his photo stream via this link: http://www.flickr.com/photos/kramchang/


Bank of Communications (交通銀行)

Founded in 1908 during the final years of Imperial China’s Qing (Ching) dynasty, Bank of Communications quickly became one of Big Four banks in China. It was also one of the first local note-issuing banks in China (many foreign banks also issued banknotes at the time). The bank's original mandate was to manage payments for, and to finance the building of the country's shipping, railways, telegraph, postal service, mining and forestry industries.

Three years later in 1911, forces led by Dr. Sun Yat-Sen overthrew the Qing (Ching) dynasty, ending two thousand years of imperial rule in China but also plunging it into almost four decades of wars and instability. In 1934, Bank of Communications opened a Hong Kong branch to handle the massive amount of remittance business between the then British colony and China.

Following the devastating invasion from Japan, World War II and China’s own civil war between the Communists and the Kuomintang (Nationalists), the Republic of China government (founded in 1911) fled to the island of Taiwan in 1949 while the Communists took over mainland China, establishing the People’s Republic of China. Like China itself, Bank of Communications was also split, with the Communists taking over the mainland Chinese operations and the Kuomintang taking the senior management team and the bank's precious metals to Taiwan. Both parts of the bank were effectively nationalized, though Communist China's Bank of Communications continued operations until 1958, when it was dismantled and its assets divided up between the People's Bank of China and the People's Construction Bank (today's China Construction Bank). Interestingly, ownership of Bank of Communications Hong Kong Branch was transferred to Bank of China (Hong Kong), but maintained its own management and branding, becoming the only entity operating under the original banner for quite some years.

Meanwhile, Taiwan's Bank of Communications remained shut as Taiwan itself plunged into a decade of social unrest and terror. It was only in 1960 that the remnants of Bank of Communications resumed operations in Taiwan, adopting a new English name Chiao Tung Bank, which actually means "Bank of Communications" in Mandarin Chinese. Eventually Chiao Tung Bank and International Commercial Bank of China (the Taiwan descendant of the Bank of China) merged in 2006 to form today's Mega International Commercial Bank.

After decades of social turmoil, famines and terror under Chairman Mao Zedong's regime, China in 1979 launched its “economic reform and open-door policy” and the new Bank of Communications Co. Ltd. was re-established in Shanghai in 1987 as modern China’s first state-owned joint-stock bank. Despite this, under state-control, bureaucracy and corruption was common in all Chinese banks well into the 1990s, when regulatory and managerial reforms began to slowly transform them towards more market-driven and risk-conscious enterprises.

The new Bank of Communications became the first bank in China with a mandate to transform itself from the old, corrupt, backward and bureaucratic mode of operations that merely carried out official policies regardless of risk and profitability, or lack thereof, to one based on market forces.

In 1983, Bank of Communications Hong Kong was amalgamated into the Bank of China (Hong Kong) Group. However, in 1998, Bank of China (Hong Kong) Group returned Bank of Communications Hong Kong back to the Shanghai-based Bank of Communications Co. Ltd.

As of 2010, Bank of Communications had a nationwide network of over 2,600 branches in China and was the No. 5 bank in China. Overseas, the bank operates a network of branches in Hong Kong while maintaining offices in New York, Tokyo, Singapore, Seoul, Macao, Frankfurt and London.

Recent transaction(s):

• In 2004, with the banking reform now well under way with other state-owned banks like the Agricultural Bank of China, Bank of China, China Construction Bank and the Industrial & Commercial Bank of China, the State Council approved Bank of Communications' plan to partially float its share capital. To facilitate the modernization of the bank’s management, product lines and operations, Bank of Communications invited HSBC Holdings to take a 19.9% stake in itself for USD $1.75-billion.
• On 2005-06-23, the bank was listed in Hong Kong, becoming the very first Chinese bank to do so outside of mainland China.
• On 2007-05-15, Bank of Communications obtained a dual listing on the Shanghai Stock Exchange, becoming the first Chinese bank to float its stock domestically.
• In February 2010, Bank of Communications raised HKD $37.24-billion (CNY 32.77-billion, USD $4.79-billion) from a rights issue to improve its capital level after a surge in lending and an increase in capital requirement ratio by the People’s Bank of China, the country’s central bank. HSBC Holdings, which aimed to maintain its 19% stake in the Chinese lender, subscribed to CNY 6.29-billion (HKD $7.17-billion, USD $921-million) of the rights issue.

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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. (中國工商銀行, 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.

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