Thursday, August 14, 2008

China to extend Africa acquisitions

By Tom Burgis in Lubumbashi, Financial Times, published: July 30 2008

China is readying to move into Africa on a scale that far outstrips its acquisitions on the continent to date, according to the South African bank that is laying the groundwork.

High-level groups of bankers from Industrial and Commercial Bank of China and Standard Bank, respectively China and Africa’s biggest banks, are examining potential targets in Africa’s oil and gas, telecoms, base metals and power sectors, executives at the Johannesburg-based lender have told the Financial Times.

Clive Tasker, chief executive of Standard Bank’s business in Africa excluding South Africa, said the resultant deals were likely to be at least as large as ICBC’s $5.5bn (£2.7bn, €3.5bn) purchase last year of a 20 per cent stake in Standard – itself the largest foreign direct investment in post-apartheid South Africa.

But Standard bankers admitted that building a relationship with their Chinese colleagues is proving more difficult than they had anticipated. Billed as a “combination of giants” by ICBC chairman Jiang Jianqing, the union was finalised on February 14, months after the initial overtures.

Beijing expects trade with Africa to hit $100bn by 2010, which makes the rationale for ICBC to gain access to Africa’s biggest pan-African banking network clear.

For Standard, apart from the capital injection to bolster its reserves, reward shareholders and fund expansion, the most tempting fruits of the deal depend on using the connection with ICBC to open doors to Chinese investors and guiding them into Africa.

“The honeymoon is over,” said Tim Thackwray, Standard Bank’s head of investment banking for Africa. “Now the hard work starts.”

Beyond the tribulations of marrying Chinese and South African corporate cultures, negotiating the upper echelons of ICBC – including establishing links with their counterparts – is taking time, Standard executives said. ICBC is majority-owned by the communist-run state.

All the same, Mr Thackwray added: “I would be disappointed if I couldn’t point to a big juicy deal by Christmas.”

Standard is establishing a 20-strong team in Beijing.

Standard and ICBC “can build a superhighway that connects China and Africa,” said David Munro, Standard’s chief executive for corporate and investment banking across Africa.

The first child of the banks’ “strategic partnership” is a global resources fund they are finalising and which they hope will grow to $1bn once third-party investors come on board.

Standard has 1,000 branches in 18 sub-Saharan African countries and a presence in a further 21 nations worldwide. In the past year it has made acquisitions in Nigeria, Kenya, Turkey and Argentina. This week it expanded its operation in the Democratic Republic of Congo, where Beijing last year signed an infrastructure-for-commodities deal worth up to $8bn.

It expects to finalise a licence next month to operate in Angola, one of the world’s fastest growing economies whose burgeoning oil wealth has already attracted significant Chinese interest.

Nigeria, the most populous country in Africa, and Ghana, a bastion of political stability, were also ripe for Chinese deals, Mr Thackwray said, with Mozambique and Congo close behind as they emerge from conflict.

Several executives said that corporate China was looking at targets beyond the mining sector, which has dominated the Asian giant’s African investments as it seeks to satiate its thirst for commodities.