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Ups and downs at the two giant banks
Standard and its Chinese suitor, ICBC, were in desperate straits in 1999. Both have since transformed
October 26, 2007
 By Ann Crotty
Johannesburg - In 1999 Standard Bank was cowed under the threat of a takeover bid from Nedcor. The offer, which was for 50.1 percent of Standard and was to be paid for in Nedcor shares, valued Standard at R30 billion. The ICBC (Industrial & Commercial Bank of China) deal announced yesterday values Standard at R184 billion.
The Nedcor attack evidently shook up management sufficiently, in what had become a dull and pedestrian bank, to see Standard resume its position as a leading blue chip in the local banking sector.
The surge in the share price since 1999, from about R18 to the ICBC valuation of R136, is a reflection of the considerable improvement in management as well as the supportive conditions for the banking sector in the local economy for the past four years. This deal, which places Standard in an ideal position to capture much of the rapidly increasing business between Africa and China, should ensure that its strong performance of recent years is sustained.
ICBC has also had its share of drama. In 1999 it, and all the banks in China, were deemed to be technically insolvent. Last September ICBC was listed on the Shanghai Stock Exchange, in what was the largest initial public offering in history. It quickly became the biggest bank in the world in terms of market capitalisation - exceeding even enormous US banks such as Citigroup.
Goldman Sachs bought 5 percent of ICBC for $2.6 billion (R18 billion) at the time of the listing. In the year to date ICBC's share price has increased 169 percent and that stake is currently worth $16 billion. Goldman Sachs is believed to play a significant role in assisting ICBC in its international strategy.
The dramatic events of ICBC's life over the past nine years mirror much of the dramatic events that have unfolded across China in that period.
Kobus van der Wath of Beijing Axis, a Beijing and Johannesburg-based consultancy, said yesterday that in the next six months China would overtake Germany as the third-largest economy in the world. China took over the number four slot just 18 months ago. ICBC, which is one of the four largest banks in China, has played a crucial role in that growth process.
Thomas Orr, the Beijing-based representative of China Advantage - Emerging Markets economic consultancy, said yesterday that ICBC, which is 70 percent owned by the Chinese government, had turned in the best performance of the large four Chinese banks. "It is most exposed to the juiciest parts of the China growth story." Its earnings for the third quarter of the current financial year were $3 billion.
That the ICBC share price looks extremely expensive on a price/earnings multiple of about 40 times is partly attributable to the surging prices of all equities on the Shanghai Stock Exchange but Orr reckons that "strong internal organic earnings, which look set to continue well into the future" underpin much of that valuation. Its recovery from a position of technical insolvency is attributable to the decision by the Chinese government to transfer all of the major banks' non-performing loans off their balance sheets.
This move was in line with the government's strategy to support its large banks sufficiently so that they could become major global players and support Chinese companies in their bid to expand into the international arena.
Orr stressed that although ICBC was state-owned, its international operations and strategy were certainly not state-controlled. "The Chinese finance ministry has world class policy-makers and decision makers. It is run almost like an investment bank by some of the sharpest people in the country; they are trying very hard to ensure that their banks are world class."
This meant not being slowed down by government dictate. Orr noted that although the deal might have a political dimension to it, the primary consideration for ICBC would have been the attractiveness of Standard as an investment.
"The Chinese financial community has been saying for some time that South African banks are undervalued."
Van der Wath described the move as "the dawn of a new era".
10 Biggest African merger and acquisition deals to daet
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Vodafone – Venfin
Britain’s Vodafone Group acquired Venfin for $3.4 billion in November 2005.
CNOOC – Oil & Gas Assets
China National Offshore Oil Corporation (CNOOC) acquired Nigeria’s Oil & Gas Assets for $2.69 billion in January 2006.
Emirates Integrated Telecommunications and
Dubai Investment Group – Tunisie Telecom
Emirates Integrated Telecommunications and Dubai Investment Group acquired 35 percent of Tunisie Telecom for $2.29 billion in April 2003.
Petronas – Edison
Malaysia’s Petronas acquired Egypt’s natural gas firm Edison for $1.76 billion in April 2003.
Intesa Sanpaolo – Bank of Alexandria
Italy’s Intesa Sanpaolo purchased an 80 percent stake in Egypt’s Bank of Alexandria for $1.6 billion in October 2006.
Vivendi – Maroc Telecom
France’s Vivendi bought 16 percent of Morocco’s Maroc Telecom for $1.45 billion in November 2004.
Eni – Republic of the Congo oil and gas assets
Italian oil and gas group Eni bought operating licences for oil fields in the Republic of the Congo for $1.43 billion in February 2007.
Altadis – Regie des Tabacs
French-Spanish tobacco group Altadis purchased an 80 percent stake in Morocco’s Regie des Tabacs for $1.4 billion in January 2003.
MTC – Mobitel
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Source: Dealogic; Reuters
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