ICBC to buy Standard Bank stake for $5.6 billion

SHANGHAI/JOHANNESBURG (Reuters) - China's biggest lender ICBC 1398.HK is to buy 20 percent of South Africa's Standard Bank SBKJ.J for $5.6 billion in cash, the biggest foreign acquisition by a Chinese commercial bank yet.

The move announced on Thursday -- which will also be the largest foreign investment in Africa -- comes as Beijing encourages major state firms to expand abroad, particularly in developing countries.

“This acquisition will help to build a foundation for ICBC to become a global bank,” Chairman Jiang Jianqing told reporters in Beijing.

Industrial and Commercial Bank of China said earlier in a statement buying a stake in Standard Bank, Africa’s biggest banking group by assets, would enable it to capitalize on the growth prospects in Africa’s largest economy.

“ICBC believes the best method of capturing these growth opportunities is through a strategic alliance with a large South African bank with significant operations on the African continent,” ICBC said.

The stake purchase is the biggest foreign investment yet in Africa, according to Dealogic data.

Standard Bank Chief Executive Officer Jacko Maree said the transaction was put together in 45 days after initial talks first started two years ago.

“We think it (the ICBC investment) is an enormous vote of confidence in South Africa and in Africa,” Maree said at a presentation on the transaction in Johannesburg.

The deal will give Standard Bank access to the world’s fastest-growing economy, further enhance its capital base and boost the bank’s ability to facilitate and finance trade flows between Africa and Asia, Maree said.

ICBC is buying an equal mix of new shares to be offered by the South African bank and existing stock from shareholders at prices that equate to a 15 percent premium to Standard Bank’s average stock price in the 30 trading days to October 23.

AFRICAN BUSINESS

China has been pouring money into resource-rich Africa, welcomed by some, but drawing criticism from Western aid groups, who say the country is turning a blind eye to misrule and corruption. China argues it is spreading prosperity in the world’s poorest continent where the West failed.

“ICBC is buying into Standard Bank because Chinese companies are swarming to Africa to do business. We want to boost our financial services such as trade finance to Chinese clients there,” a source familiar with the matter told Reuters.

Johannesburg-based Standard Bank operates in 18 African countries and 21 other countries across the world.

Its shares -- suspended pending the announcement -- jumped 6.05 percent to a record high of 117.70 rand on the news after trade resumed. Standard Bank shares have gained 23.4 percent so far this year. South Africa’s rand currency also strengthened over 1 percent against the dollar on the news.

“The rationale for Standard Bank is perhaps not quite clear. The rationale for the Chinese bank makes far more sense. It gives them access into Africa where there are big natural resources and increasing trade with Africa,” said a Johannesburg analyst who asked not to be named for compliance reasons.

ICBC, which overtook Citigroup C.N in July as the world's biggest bank by market value, is flush with cash and eyeing expansion opportunities after raising $21.9 billion last year in the world's biggest IPO.

On Thursday, ICBC reported a 76 percent rise in third quarter net profit to 22.46 billion yuan ($3 billion).

ICBC also said it has no current plan to lift its stake in Standard Bank above 20 percent. ICBC also said it hopes eventually for overseas business to account for 10 percent of its total, compared with 3 percent now.

ICBC, in which Goldman Sachs GS.N, Allianz Group ALVG.DE and American Express AXP.N hold stakes, will have the right to two seats on the African bank's board. Goldman Sachs advised ICBC on the deal.

ICBC and Standard Bank said the deal requires approval from both companies’ shareholders as well as regulators in China and South Africa.

ICBC bought a 90 percent stake last December in PT Bank Halim Indonesia and agreed in August to pay $583 million for 80 percent of Macau’s Seng Heng Bank.

Standard Bank itself has been expanding. Since the start of 2006, the group bought control of Nigeria's IBTC Chartered Bank IBTC.LG and most of Bank of America Corp.'s BAC.N BankBoston Argentina assets.

ICBC's shares closed 0.28 percent lower at HK$6.99 on Thursday, while an index of Chinese firms listed in Hong Kong .HSCE dipped 0.19 percent. The shares have risen 43 percent this year, lagging an 87 percent gain in the H-share index.

Samuel Chen, a banking analyst at JP Morgan in Hong Kong, said before the news that a deal could enhance ICBC’s 2008 net profit by 2 to 3 percent based on an assumption that ICBC takes a 20 percent stake in Standard Bank for $5.5 billion.

Earlier this week, China's CITIC Securities 600030.SS agreed to invest $1 billion in Bear Stearns Cos BSC.N, a U.S. investment bank battered by the mortgage market slump.