Now that love affair with Portugal is extending to mergers and acquisitions. This month’s bid by Haitong Securities Co. for an investment bank is the latest example of a mainland firm buying Portuguese assets.
State-owned Haitong is buying the investment-banking arm of Banco Espírito Santo SA, a Portuguese lender that has collapsed, giving the mainly domestic Chinese broker a London underwriting and advisory license, as well as offices in 16 countries including Spain, Brazil and Angola. Banco Espírito Santo de Investimento SA, the investment bank known as BESI, is being sold for $466 million, a relatively low price for a brokerage with a global reach, reflecting the hard times that have hit its parent, as well as the difficulties Portugal has encountered since the financial crisis.
Chinese companies boosted their European exposure 64% by spending $24.7 billion on acquisitions so far this year, according to the data-tracking company Dealogic, but the buying of Portuguese assets increased much faster. So far this year, Chinese firms have invested $2.8 billion, according to Dealogic, up from $123 million last year.
The record was $3.5 billion in 2011, when China Three Gorges Corp. bought a stake in EDP-Energias de Portugal SA, marking China’s first acquisition of Portuguese assets.
Chinese companies are using deals in Europe to expand their reach in Africa. Early this year, for instance, Industrial & Commercial Bank of China Ltd. bought a controlling stake in the London-based global markets business of South Africa’s Standard Bank, the continent’s biggest lender.
ICBC already owned part of Standard Bank.
“The Chinese population has been growing in these [Portuguese-speaking] countries after large investments by Chinese firms. That has brought more Chinese firms or banks into these markets to follow their clients,” said Ellis Chu, head of China M&A at Bank of America Merrill Lynch.
Mr. Chu said that in general, Portuguese-speaking countries globally, including Brazil, Angola and Mozambique, have tended to be more open to Chinese buyers than many other countries.
Some of the acquisitions have been cases of companies following Chinese people abroad. A “golden visa” program Portugal instituted in 2012 gave residency rights in the country and hassle-free travel in 26 countries—from Sweden to Germany to Lichtenstein—to foreigners who either transfer capital worth €1 million ($1.2 million), including by buying shares in Portuguese companies, create 10 local jobs, or buy real estate valued at €500,000 or more.
Of 1,936 golden visas issued from October 2012 to the end of November, 81% were taken up by Chinese people, according to AICEP, a Portuguese government trade and investment agency.
BESI has done well in Portugal and Latin America, but was unprofitable in the rest of Europe and Asia in the first six months of the year. Haitong, China’s second-biggest brokerage by assets after Citic Securities , posted a 7% gain in net profit in the first half of the year.
Early this month, Haitong Securities Chairman Wang Kaiguo said in a statement that combined, the two companies “could share their sales channels, financing sources and client relationships, to realize effective cross-selling and create strategic value.”
The Shanghai conglomerate Fosun International Ltd , which isn’t state-owned, has also been a big buyer in Portugal. It acquired the insurance arm of Portuguese state bank Caixa Geral de Depósitos SA for $1.5 billion in January and agreed this fall to buy Espírito Santo Saúde SGPS SA, a health-care company, for $850 million.
“Portugal is a very important market for Fosun and a strategic destination in Fosun’s global investment footprint,” said a representative at the firm, which is in the midst of a bidding war for French resort operator Club Med.
“Fosun aspires to anchor from Portugal to seek and identify different investment opportunities within Portugal and in other parts of Europe, covering industries including real estate, leisure travel, health care and consumer sectors.”
The need for cross-cultural integration is a risk of buying so far overseas, say analysts. Citic Securities bought CLSA Asia-Pacific Markets from France’s Crédit Agricole SA in 2013, but
CLSA’s main office is in Hong Kong.
“We believe it would be still difficult for Haitong to catch up as the integration of Haitong and BESI would be more difficult, given their very different cultures as compared with the Citic-CLSA transaciton,” said Edmond Law, an analyst at UOB KayHian, a Singapore-based securities-trading and investment firm.
The single biggest Portuguese purchase so far—China Three Gorges’ 2011 acquisition of part of EDP-Energias de Portugal—has already yielded some benefits. The two companies have invested jointly to build dams in Mozambique and Angola.
The next company in line for an acquisition could be Novo Banco, BESI’s parent, which was created to house the remaining sound assets held by Banco Espírito Santo after the lender collapsed. The bank was put on the block this month.
Officials from Fosun were recently in Lisbon and asked the Bank of Portugal and the government about Novo Banco, according to a person familiar with the situation. The Fosun representative said the company hasn’t submitted a bid for the bank.
Source: Wall Street Journal by Yvonne Lee
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