Clever move

25 October 2007 By Martin Hutchinson

Its purchase of a 20% stake in Standard Bank is an excellent move. For only 14 times earnings, it gets unique access to a wellplaced source of finance for the rapidly increasing trade between China and Africa, which is becoming important economically as well as strategically.

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The Industrial and Commercial Bank of China has agreed to buy 20% of Standard Bank, the largest bank in Africa by assets. ICBC will pay 36.7bn rand, ($5.6bn) for its shareholding, of which 16bn rand will go to Standard Bank Group and the remaining 20.7bn to shareholders, who will be paid a 30% premium to Standard's market share price. The deal requires shareholder and regulatory approval; it is understood that the South African Reserve Bank will cap ICBC's potential future shareholding at about 25%.

Standard Bank operates in 18 African countries and 20 countries outside Africa, has $156bn in assets and 46,000 employees. Its market capitalisation of $21bn represents 12 times trailing earnings, so ICBC's average acquisition price represents just under 14 times earnings.

ChinaAfrica trade has increased more than tenfold in the last decade, to a value of $55bn in 2006, up 40% from 2005, and now represents 7% of Chinese trade, up from 1%, with China's imports from Africa modestly exceeding its exports to it. 12% of subSaharan African exports are to China. China is a major importer of oil and minerals. In return, China provides both consumer goods and infrastructure, investing in roads, ports, railway lines, telephone lines and power stations, also providing cheap credit.

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