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CCB to acquire majority stake in Brazil's BicBanco

Updated: 2013-11-02 07:21
By Yang Ziman ( China Daily)

China Construction Bank Corp will acquire 72 percent of the shares of a Brazilian bank, Banco Industrial e Comercial SA (BicBanco), for 1.62 billion reals ($726 million), BicBanco has announced.

The BicBanco deal still requires regulatory approval in both countries.

BicBanco, which is based in Sao Paulo, mainly lends to small and medium-sized domestic enterprises.

It's also involved in consumer credit and foreign exchange, among other activities.

CCB, China's second-largest lender by assets, hasn't completed any offshore acquisitions for seven years, since it bought Hong Kong-based BA Asia Ltd for HK$9.71 billion ($1.25 billion).

Wang Hongzhang, president of CCB, said last year that the bank had allocated 100 billion yuan ($16.4 billion) for overseas expansion.

The Brazilian acquisition is taking place as BicBanco grapples with weak profitability. According to Moody's Investors Service, the bank's average net profit margin has dropped to 0.1 percent, compared with 2.9 percent in 2009.

Its assets have shrunk to $8.2 billion from $10.3 billion in 2010.

Mergers and acquisitions involving companies with troubled assets "should be carried out with particular caution", warned Yu Bing, a partner at KPMG China.

"The potential problems may eventually erupt and hurt the purchaser's profitability," Yu said.

Cases in point include China Investment Securities Co Ltd's purchase of 10 percent of the United States-based Blackstone Group's shares, only to see the shares plunge amid the financial crisis.

Another example involves China Minsheng Banking Co Ltd's investment in US-based United Commercial Bank Ltd in 2008. UCB was closed by regulators a year later, resulting in a loss of 824 million yuan for Minsheng.

Chinese State-owned enterprises are expanding their presence in Latin America, providing potential customers for Chinese banks in the region.

For example, in October, China National Petroleum Co and China National Offshore Corp signed a 35-year contract with overseas oil companies to develop an offshore oilfield in Brazil.

As of June 30, the assets of CCB's overseas branches and their subordinate offices totaled 636.3 billion yuan, accounting for 4.2 percent of the bank's total assets.

In 2007, Industrial and Commercial Bank of China Ltd bought a 20 percent stake in Standard Bank of South Africa Ltd for $5.6 billion.

Before that purchase, ICBC - the largest lender in China - acquired 90 percent of PT Bank Halim Indonesia in 2006.