Construction Bank’s $100 million stake in VTB
Bank follows an agreement signed by Chinese president Xi
Jinping during his high-profile visit to
deal had to be structured around Russia’s
capital markets and capital adequacy
banks’ high-profile acquisitions in the last
year have included US targets. But they are expected to focus
on emerging markets.
partnership between China Construction Bank (CCB) and VTB,
Russia’s second largest bank, signifies a
tightening relationship between the two so-called
Sachs’ Jim O’Neil created the acronym
for Brazil, Russia, India, China and sometimes South Africa in
2001 on the grounds they were fast-growing countries at similar
stages of economic development.
since then, they have since forged closer ties, including by
holding a summit every year since 2009. This partnership
between the two powerful state-backed lenders signals China and
Russia’s policy goals to bring their economies
both the political and business levels, there is quite a lot of
interest in deals between China and Russia. This deal came off
the back of a high-level visit
in March from the Chinese premier to Russia," said
Clifford Chance’s Terence Foo, who advised CCB on
the bank deal.
two countries have set a $100 billion bilateral trade target by
2015, and had already reached $88.2 billion last year. In an interview with
Xinhua, Chinese president Xi Jinping said that the
two countries would work together to reach the $100 billion
target ahead of schedule.
deal counsel had to work with Russian capital markets
regulations to make the partnership work.
April 26, VTB Bank announced its
intention to raise up to RUB 102.5 billion ($3.18 billion) of
new capital. Dual-listed in Moscow and London, the bank state
it would raise this by issuing 2.5 trillion new through the
pre-emptive and secondary offerings diluted the Federal Agency
for State Property Management’s stake from 75.5%
A May 21 VTB press
release noted that sovereign funds Norges Bank
Investment Management, Qatar Holding and the State Oil Fund of
Azerbaijan agreed to purchase more than 50% of the shares in
the secondary offering. CCB invested$100
the four entities purchased approximately
55% new shares in VTB.
said the agreements were structured in a manner specific to
had a subscription agreement that was conditional upon the
pre-emptive offering being completed first," he said. "Once
that was closed, the parties would sign a separate offer and
acceptance agreement that would then constitute the actual
share purchase agreement."
pre-emptive subscription period ran from May 6 to May 17. Once
that ended, CCB was able to invest in the secondary
explained that this was structured to address a Russian
requirement that prevents a listed company from making any
offer until it has completed a pre-emptive offering to existing
of the reasons that the share sale was carried out was to boost
VTB’s tier 1 capital ratio from 10.3% to
Basel III requirements implemented by the Central Bank of
Russia made it difficult for CCB to use special purpose
vehicles (SPVs) to purchase shares.
this represented an investment into a bank, the Central Bank of
Russia required the investor to have adequate financial
standing, including through sufficient net assets.
said that if the investor uses an SPV to make the investment,
that SPV would have had to show sufficient equity capital to
cover the purchase price.
of the several
agreements signed by President Xi during his visit
to Moscow promoted a partnership between CCB and VTB. That
preceded the banks’ deal, but signifies that the
two financial institutions are planning to work closely
full details have not been released, but IFLR
understands that the agreement will promote mutually beneficial
cooperation and a partnership in the investment and banking
deal shows that Chinese banks are following their Chinese
corporate clients. In May, CCB opened a subsidiary in Dubai for
its Chinese clients in the United Arab Emirates. China Daily
reported that it is also looking to Taipei, San Francisco,
Toronto and Luxembourg.
financial institutions have not, however, proceeded with
M&A deals at the same pace as their corporate
ICBC acquired a
controlling stake in Bank of East Asia’s US unit
in 2012, most seem to be looking to emerging
2007, ICBC purchased 20% of Africa’s Standard
Bank, and this May it was reported that CCB would
purchase the South American assets of German lender
West LB AG.
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ICBC’s approval means for China – US
bank sales will shape global M&A http://www.iflr.com/Article/3047391/Why-bank-sales-will-shape-global-M-A.html