Smaller financial firms emerge as a target for Chinese companies looking to diversify, take advantage of cheap prices.
Chinese investors, investment burned in large European banks during the financial crisis, are refocusing on a new target: small, struggling financial companies.
In recent months there has been an increase in offers bite-sized, especially in the smaller European markets as Chinese companies on tiptoe on the continent, which seeks to diversify and take advantage of cheap prices.
More deals may be in the way, bankers and lawyers say. Chinese conglomerate Fosun International Ltd. has expressed interest in the Portuguese Novo Banco, carved out of the collapsed Banco Espirito Santo SA, while Chinese insurers have wondered about the Italian up for sale Banca Monte dei Paschi di Siena SpA, people familiar with offers. Both offers could have multimillion dollar transactions.
"Chinese financial institutions are carefully evaluating their opportunities in Europe," said Jim O'Neil, head of the Bank of global financial institutions group of America Merrill Lynch, noting that insurers have been particularly active. "They have been consciously walking in the market before they take on the opportunities and run bigger."
Last year, total investment by Chinese companies in the European financial groups soared to $ 3.96 billion from $ 304 million in 2013, according to data provider Dealogic. Most of these agreements, including acquisitions and buyouts, were valued at less than $ 1 billion. Some of deals last year are still awaiting regulatory approval.
On Monday a unit of Anbang Insurance Group Co. agreed to buy and recapitalize Vivat, the insurance arm of SNS Reaal a Dutch government-owned financial group. Anbang pay the government € 150 million ($ 170.9 million) and agreed to inject up to € 1 billion to increase the capital base of Vivat and take charge of € 552 million of outstanding debt of the group, according to the Ministry of Finance Netherlands. A spokesman declined to comment on Anbang recapitalization plans. The deal still has to obtain regulatory approval.
In December, Anbang appeared as buyer of last minute for a small Belgian bank held by the Dutch insurance company Delta Lloyd NV. Anbang also aims to complete the acquisition of Belgian Fidea insurance company in the coming months.
Industrial & Commercial Bank of China Ltd. recently bought a majority stake in the business global markets London-based Standard Bank Group Ltd. 's agreement on a reduced price. And in March, Fosun paid € 98.5 million to become the second largest shareholder of German lender BHF-Bank. Fosun said the deal would give access to the financial centers of London and Frankfurt, as well as "billionaires and family businesses."
The recent spate of deals has raised hopes among bank regulators and investors awaited an influx of Chinese investment in the battered financial sector in Europe is about to begin. This year, bankers and analysts expect China's interest in deals that stretches from Portugal to Italy and the UK as financial mainland enterprises looking to shed another's business and strengthen their balance sheets, while Chinese groups ras cash put their capital to work.
James Tye, a partner in the team of financial service transactions at PricewaterhouseCoopers LLP, said he expects this year to see an increase in Chinese purchases. Chinese buyers "have their kids on the floor, your trusted advisors in place and ready to run fast."
Some bankers warn that Chinese buyers are still suffering from losses incurred bets on Europe's banks in recent years.
In 2007, China Development Bank bought a 3.1% stake in Barclays PLC, only to see the value of the shares wither. Ping An Insurance (Group) Co. of China Ltd., the second largest life insurance company in China, pumped € 2 billion in the group of Belgian-Dutch financial services Fortis NV, which ended up being nationalized in 2008. Ping An, who wrote most of their investment Fortis, later scrapped plans to buy half the asset management unit of Fortis.
Some bankers and lawyers warn that Chinese companies remain wary of deals that could attract political scrutiny. Hence his desire to start small: There is less chance of a backlash by Chinese investors or regulators if the investment turns out to be a fiasco. The process also allows Chinese buyers to gradually build their credentials with regulators and politicians on the continent, before moving to larger prey.
The interest arises when European governments continue to attract Chinese investment in activities ranging from real estate to British entertainment company Club Med French. European financial centers, meanwhile, are competing to become centers of trade in the Chinese yuan. And European regulators are anxious to any investor who can help plug holes in the balance sheets of lenders.
There are plenty of potential targets, analysts say. Banks in southern Europe, in particular, are on the hunt for new capital or looking to get rid of lines of business.
At the same time, "the Chinese government has been encouraging Chinese companies to go abroad" to diversify, Jian Fang said a Shanghai-based partner with the law firm Linklaters. He said it is a change from the previous concerns of the Chinese government about their companies investing in European banks and other financial institutions.
The justification of Chinese deals has changed.
Anbang, who has been on a shopping spree in recent months after the Chinese government relaxed restrictions on investments in insurance companies, has said he sees Belgium, in the heart of the policy of the European Union, as a springboard to the mainland. He was also attracted by the possibility of acquiring a local banking license, according to a person familiar with the deal. ICBC's investment in global business markets Standard Bank was driven in part by the growing number of Chinese companies involved in the trade of commodities, according to a statement from the bank.
Chinese buyers have eyed Portuguese offers partly as a gateway to its former colonies in Africa.
Fosun has recently completed the first Chinese acquisition of a foreign insurance, buying a majority stake in the Portuguese insurance group Fidelity-Companhia de Seguros SA, and Haitong Securities Co. in December agreed to buy the investment banking arm of Espirito saint of € 379 million.
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