Chinese companies set for acquisition spree using financial crisis to advantage

6 Jun 2009, 1532 hrs IST, Saibal Dasgupta, TNN

BEIJING: [COLOR=blue ! important][COLOR=blue ! important]Cash[/COLOR][/COLOR] (external - login to view) rich Chinese companies are trying to make the most of the financial crisis by making acquisitions in western markets. The latest
move involves a deal inked by the Industrial and [COLOR=blue ! important][COLOR=blue ! important]Commercial [COLOR=blue ! important]Bank[/COLOR][/COLOR][/COLOR]
of China to buy 70% stake in a Canadian subsidiary of the Bank of East Asia.

This is the second major foreign acquisition by a Chinese company in a week after the move to buy out the Hummer brand from General Motors Corp. A third attempt to buy a part of Australian mining giant, Rio Tinto has been rejected resulting in subdued anger within Chinese official circles.
The ICBC deal allows China’s biggest lender to have a foot in the Canadian market while giving BEA a rare opportunity to consolidate its influence in Hong Kong. Under the arrangement, ICBC will sell 75% of its stakes in a Hong Kong firm, ICEA [COLOR=blue ! important][COLOR=blue ! important]Finance[/COLOR][/COLOR] (external - login to view) Holdings, to BEA for $48 million.

The move makes BEA, which earlier owned 25% of ICEA Finance, the full owner. ICBC has agreed to fork out a little more at $73 million for 70% control over BEA’s Canadian subsidiary.

"The acquisition of a 70% interest in BEA Canada will enable ICBC to establish its banking business and customer base in Canada, which will provide a strong platform to further expand our businesses and network across North America." Jiang Jianqing, chairman of ICBC, regarded as the world’s biggest lender by market value, said in a statement.

But Chinese officials are miffed at their failure to acquire a foot in Rio Tinto, which would have given them a rare opportunity to influence the international supply and pricing of minerals. Chinese officials said it was the best possible offer made for Rio Tinto [COLOR=blue ! important][COLOR=blue ! important]shares[/COLOR][/COLOR] (external - login to view) and hinted that nationalistic reasons could be behind the rejection.

The Australian company rejected the offer for reasons that might be "something other than economic concern," ZhangYansheng, director of the Institute of Foreign Trade of the National Development and Reform Commission, said after the Australian firm stonewalled attempts by the Aluminum Corp. of China, or Chinalco,to inject $19.5 billion in it.
Chinalco chairman Xiong Weiping said he was "very disappointed" as Rio Tinto missed a good opportunity to create value for its shareholders pave the way for long-term strategic cooperation between the two companies.

The acquisition of the Hummer from GM is a rare case where a privately owned Chinese company has made a big killing in western markets. It is usually the state-run blue chips that bid for foreign companies. But privately owned Tengzhong managed to win over GM executives by not just offering [COLOR=blue ! important][COLOR=blue ! important]money[/COLOR][/COLOR] (external - login to view) but promising that there will be no change in Hummer’s headquarters and operations in the United States.