State-owned Chinese bank to take over 60% share of Standard Bank's London operations

Out-Law News | 04 Feb 2014 | 2:01 pm | 2 min. read

The Industrial and Commercial Bank of China (ICBC) is to purchase a 60% share of South African-headquartered Standard Bank's UK subsidiary, which would make it one of the first state-owned Chinese banks to set up significant trading operations in London.

The deal, which was publicised on the websites of both banking groups, will require approval from Standard Bank shareholders and Chinese, South African and UK regulators before it can be finalised. ICBC already holds a 20% stake in the parent company, Standard Group.

"The large amount of commodities trading and the consequential needs for hedging resulting from the development of the Chinese economy, as well as financial reforms such as the deregulation of interest rates and foreign exchange rates, along with the two-way opening-up of capital markets, have posed new demands for the transformation of the service capabilities and business model of Chinese banks," said Jianqing Jiang, the chairman of ICBC.

"By leveraging Standard Bank's global markets business platform, mature business model and industrial expertise, this transaction will elevate ICBC's global markets capabilities in business development, risk management, operations and innovation in order to better serve our clients' needs," he said.

ICBC will also be granted a five-year option to purchase a further 20% of the outstanding shares in Standard Bank two years after the initial deal is completed, according to the announcement. If ICBC chooses to exercise this option, Standard Bank will be able to require the Chinese bank to purchase the remaining shareholding.

The deal relates to Standard Bank Plc, the wholly-owned UK subsidiary of Standard Bank. As part of the proposed transaction, Standard Bank Plc would be reconstituted as the platform for a focused Global Markets business, including operations in New York, Dubai, Singapore, Shanghai, Hong Kong and Tokyo. The new bank would deal in commodities, fixed income, currencies, credit and equities products.

Standard Bank's other non-African operations including investment banking, transactional products and corporate banking would remain wholly owned by Standard Bank and transferred into new legal entities in London, New York, Dubai and Hong Kong, according to the announcement. It would also retain businesses in Sao Paolo and Beijing, and its offshore operations.

ICBC is expected to pay $765 million as part of the transaction, based on 60% of the bank's audited net asset value in June 2013 less $80m. The final purchase price will be calculated with reference to the value of Standard Bank Plc at the date of completion of the transaction. Standard Bank Plc and its subsidiaries will be renamed to reflect the new ownership structure once the sale is complete.

"We are excited about the prospects of deepening and extending our cooperation with ICBC through the global markets platform that we have built outside Africa," said Ben Kruger, chief executive of the Standard Bank Group. "The strength and reach of ICBC, our strategic partners, will open a wide range of new business opportunities for the global markets business, while continuing to serve Standard Bank's African clients as their economies continue to grow and develop."

The UK and Chinese governments recently agreed a number of measures designed to boost the use of London as a hub for trading in the Chinese currency, renminbi (RMB). The city has become the first place outside of greater China which will be able to grant licences allowing direct investment in RMB-denominated shares and bonds. In addition, the Prudential Regulation Authority (PRA) is in discussions to allow Chinese banks to establish wholesale branches in the UK for the first time, rather than requiring them to establish UK subsidiaries.