HONG KONG China Construction Bank Corp is in advanced talks to buy Brazil's Banco Industrial e Comercial SA BICB4.SA, a person familiar with the matter told Reuters, as China's No. 2 lender swoops in on a mid-sized lender battered down by bad debt.
CCB (601939.SS), through the purchase, would gain direct access to Chinese companies buying into South America's natural resources.
BicBanco has a market value of 1.7 billion reais ($778 million) after its shares rose 62 percent since September 23 after takeover reports in local media.
If successful, the purchase would be the first of a Brazilian bank by one of China's big four state lenders since going public after a government restructuring. It would also be the biggest Chinese bank deal in Latin America.
BicBanco, which lends primarily to companies, said in a securities filing on Tuesday that its "controlling shareholders are always open to business opportunities and, in that regard, there has been progress in negotiations over the sale of a controlling stake in the company," though it has not signed any binding agreements.
The Sao Paulo-based bank is being advised by Citigroup Inc (C.N), the person, who asked not to be identified as the discussions were confidential, said on Wednesday.
CCB and BicBanco did not immediately respond to a request for comment. Citigroup declined to comment.
CCB shares, valued at $189 billion, were up 0.9 percent on Wednesday in line with the broader market rise .HIS.
BicBanco shares, despite the rally, still trade at trailing price to book ratio of 0.86 whereas CCB trades at 1.1.
In July, Moody's Investors Service raised concern about BicBanco's financial position, saying the bank's profitability and asset quality have been under pressure following consecutive quarters of high provisioning costs and credit losses.
"New non performing loan formation remains high, despite management's decision to refocus its target market towards lower risk, lower margin borrowers," Moody's said.
Chinese banks have been looking to win custom from compatriot companies operating overseas in response to a slowing market at home.
Two groups of Chinese miners, in partnerships that will pit giant Chinalco Mining Corp International (3668.HK) against rival Minmetals, lead a shortlist of suitors for Glencore Xstrata PLC's (GLEN.L) $5.9 billion Las Bambas copper mine in Peru, Reuters reported earlier this month.
CCB has the most overseas exposure among China's big four and is present in 36 countries.
In May last year, CCB was in talks to buy the Brazilian assets of German bank WestLB, according to media reports at the time, though another suitor won.
ICBC also bought 80 percent of Standard Bank's Argentina SA from Standard Bank London Holdings PLC SBKJSL.UL for an estimated $600 million in cash in 2011.
Agricultural Bank of China Ltd (601288.SS) is in talks to bid for Hong Kong lender Wing Hang Bank Ltd 0302.HK, Reuters previously reported.
Founded in 1938 in the northeastern Brazilian state of Ceara, BicBanco focuses on medium-sized companies with annual revenues of up to $230 million.
The bank had 13.63 billion reais in its credit portfolio at the end of July, with 92.5 percent of the loans going to businesses who use the money as working capital for their short-term funding needs, according to its most recent earnings report.
BicBanco had 16.82 billion reais of assets at the end of the second quarter to July 31 and a Basel Tier 1 ratio of 12.32 percent.
Bloomberg News earlier reported the talks with CCB.
The Beijing-based bank reported its slowest third-quarter earnings growth in more than five years on Sunday, hit by an increase in loan loss provisions. ($1 = 2.1796 Brazilian reais)
(This version of the story was refiled to clarify nature of deal and drop reference to South African deal in paragraph four.)
(Reporting by Denny Thomas; Additional reporting by Elzio Barreto, Lawrence White and Gabriel Wildau; Editing by Michael Flaherty, Jacqueline Wong and Christopher Cushing)