Chinese banking giant the Industrial and Commercial Bank of China (ICBC) is to acquire a 20 percent stake in SA banking group Standard Bank for $5.5-billion (R36.7-billion), it was announced on Thursday.
The move is seen as a dramatic step-up in China's investment ambitions on the continent and will inject much needed foreign direct investment into South Africa.
The stake will be acquired by means of an inter-conditional specific issue of new Standard Bank Group ordinary shares for cash and acquisition from existing ordinary shareholders in terms of a scheme of arrangement, each of the post-issue ordinary share capital of Standard Bank.
Of the R36.7-billion the Chinese bank will be paying for the stake, R20.7-billion will be payable to shareholders and R15.9-billion will be in the form of new proceeds to Standard Bank.
The new ordinary shares will be issued at a 30-trading day volume weighted average price of 104.58 rand per share, while the consideration for the shares to be acquired in terms of the scheme of arrangement will be 136 rand per share ? a 30 percent premium.
The deal will also allow for ICBC representation on the Standard bank board.
ICBC is China's leading domestic commercial bank with total assets of Renminbi 8.3-trillion ($1.1-trillion) and is listed on the Hong Kong and Shanghai stock exchanges. It is also the world's largest bank by market value, with a market capitalisation of RMB2.53-trillion (about $319-billion).
The Chinese bank said on Thursday that it has been actively investigating the most suitable strategy for it to capitalise on the substantial current and expected trade and investment flows between China and the African continent.
It added that it shares Standard Bank Group's vision about the long-term investment proposition for Africa and, together with Standard Bank Group, hopes to lay the foundation for significant expansion of such trade and investment between its Chinese clients and the African continent.
"ICBC views South Africa as an attractive market for investment, given its growth prospects, its sophisticated economy and sound, profitable and well-regulated financial services infrastructure, as well as its rapidly growing banking customer base.
"ICBC believes that 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 also views Standard Bank Group's activities in international markets outside of Africa as beneficial for future growth and has undertaken to support Standard Bank Group's strategy to expand its African and international networks and capabilities (including China) and where appropriate to partner in the expansion of these networks," the Chinese banking giant said.
China, Africa relations
Standard Bank, Africa's biggest bank in terms of assets, described ICBC's proposed investment in the bank as a landmark transaction for Africa, South Africa and Standard Bank Group itself.
"Standard Bank Group's proposed partnership with ICBC will place it at the cross-roads of economic interaction between China and the African continent and will represent a strong vote of confidence in the future relationship between the two regions," the South African bank said.
It said that the two banks' international networks were largely complementary in terms of their location.
"The transaction will result in Standard Bank Group having a substantially increased capital base, which will ensure that it continues to benefit from organic growth opportunities in its domestic, African and international operations and will provide it with enhanced strategic flexibility to pursue other growth opportunities," it stated.
It said the transaction represented a cost-efficient means of raising core equity capital at market-related prices.
"Further, Standard Bank Group believes that the scheme consideration represents an attractive price for shareholders to realise a portion of their shareholdings.
"Standard Bank Group and ICBC anticipate that substantial business and strategic benefits will arise from this partnership. Business co-operation is anticipated across the African continent, in China and globally where appropriate.
"This co-operation will be based on the expansion of product offerings to the existing customer bases of both partners and the creation and expansion of new businesses built on the key strengths of the two partners," Standard Bank concluded.