China Construction Bank Corp., the nation’s second-biggest lender by assets, is close to reaching a deal to acquire Brazil’s Banco Industrial & Comercial SA, according to a person with direct knowledge of the matter.
BicBanco, as the Sao Paulo-based lender is known, will probably fetch a price higher than its current market value of 1.67 billion reais ($764 million), the person said, asking not to be identified because the talks are private. Under the agreement, Construction Bank would buy the 70 percent held by the controlling shareholders, the Menezes de Bezerra family, and make a tender offer to acquire the rest, the person said.
Acquiring a lender is the easiest way for Construction Bank to obtain a license in Brazil as it follows customers to the nation, the person said. China and Brazil in March agreed to establish a $30 billion currency swap line and China National Petroleum Corp. last week won the rights to help develop Brazil’s biggest oil discovery in the Libra field.
“Chinese banks are interested in Brazil because it is an emerging market with faster economic growth,” said Edmond Law, an analyst at UOB Kay Hian Holdings Ltd. in Hong Kong. “The resources sector there is booming, creating fresh demand for banking services that the Chinese lenders can tap.”
Shares of Beijing-based Construction Bank climbed 1.2 percent to HK$5.96 in Hong Kong as of 10:49 a.m., narrowing the bank’s drop this year to about 4.3 percent. The city’s benchmark Hang Seng Index advanced 0.8 percent today.
“CCB is following its customers in planning its overseas expansion,” Grace Wu, an analyst at Daiwa Capital Markets Hong Kong Ltd., said by phone today. China is Brazil’s largest trading partner, with exports and imports between the two countries reaching $63.7 billion by the end of September.
CNPC and Cnooc Ltd. are among oil and gas producers that won a concession to develop Brazil’s Libra discovery at last week’s auction. The Chinese companies will partner with Petroleo Brasileiro SA, Royal Dutch Shell Plc and Total SA. CNPC is also nearing an agreement to buy assets in Peru from Petrobras, three people with knowledge of the matter said yesterday.
Construction Bank’s bigger rival, Industrial & Commercial Bank of China Ltd., is also expanding in Latin America. Beijing-based ICBC bought 80 percent of Standard Bank Group Ltd.’s Argentine division last year, after having opened in Peru and received authorization to open a bank in Brazil.
BicBanco hired New York-based Citigroup Inc. to advise on the sale to Construction Bank, two people said. Morgan Stanley is advising the Chinese lender, one of the people said.
BicBanco specializes in loans to mid-sized companies and has total equity of 1.92 billion reais, according to company filings. The bank tightened its lending standards after leverage rose and credit quality deteriorated among small and mid-size companies in 2011 and 2012, analysts at Banco Bradesco BBI SA said in a report in May.
“Acquiring a majority stake in a smaller firm in a new market could be good for CCB, as the control would ensure that there will be a strategic alliance or business synergy,” Daiwa’s Wu said.
BicBanco’s loan book shrank 5.7 percent in the second quarter from the first and 4.1 percent from a year earlier, according to company filings. It has total assets of 16.8 billion reais.
The bank’s deposit ratings were cut to junk in August by Moody’s Investors Service, which said the company’s loan margins are being compressed as it shifts toward lower-risk borrowers.
BicBanco said in a statement that controlling shareholders are in talks to sell a stake, and no agreement has been reached. The bank declined to comment further.
Rob Julavits, a Citigroup spokesman, declined to comment. Press officials at Construction Bank in Beijing didn’t return two calls and an e-mail seeking comment. Mary Claire Delaney, a spokeswoman for New York-based Morgan Stanley, declined to comment.