With an eye toward acquisition opportunities that have emerged with the crisis in Brazil and the revival of infrastructure investment programs, Chinese banks are bolstering their operations in the country.
China’s five largest lenders with presence in Brazil — Industrial and Commercial Bank of China (ICBC), Bank of China, Haitong, China Construction Bank (CCB) and Bank of Communications (BoCom) — represent, together, only 0.48% of the total assets in the Brazilian financial system, but they don’t need a big balance sheet to operate in the country. Most are focused on financial advisory and support to financing by on-lending external credit, in addition to having the advantage of working with export agencies and Chinese multilateral organizations to finance infrastructure projects in Brazil.
ICBC, the world’s largest bank in terms of assets, with $3.47 trillion, intends to participate in infrastructure financing in partnership with the Brazil-China fund, launched with the Brazilian government. Of the fund’s total $20 billion, $15 billion will come from the China Latin America Industrial Cooperation Investment Fund (Claifund). “IBCB would like to participate in the construction of infrastructure projects in Brazil together with the Brazil-China Fund as supporter in the financing, not as direct investor,” Li Xiaobo, the bank’s chief executive in Brazil, says in an email interview.
ICBC has been working with Chinese export agencies to infrastructure projects in the country, in power, transportation, municipal construction and other sectors. “The selection of projects takes into account the requirements of policies, stability of return and risk control,” Mr. Li says.
That is also Haitong’s strategy. The bank began operating in Brazil in 2015, after acquiring the global operations of Portuguese institution Banco Espírito Santo Investimento (BESI). Focused on financial advisory to Chinese investors and companies arriving in Brazil, the bank had R$7.45 billion in total assets, according to the Central Bank, and currently has seven to nine mandates. “We operate in the mediation process, either to structure infrastructure projects or to advise in acquisitions and privatizations that have Chinese companies interested, seeking financing solutions both of short and long terms,” says Alan Fernandes, the bank’s CEO in Brazil.
This year, Haitong advised a unit of China Gezhouba Group in the acquisition of the stake held by a consortium of Camargo Corrêa and Andrade Gutierrez in the public-private partnership of Sistema Produtor de Água São Lourenço, a water services concessionaire. The bank also advised Chinese group Pengxin in the purchase of a stake in agribusiness concern Belagrícola.
Mr. Fernandes says there are other operations of interest to Chinese companies, especially in sectors such as power, renewable energy, agribusiness, oil and gas, railway and logistics. In power, Haitong participated in the financial modeling and viability study for EDP, which is controlled by China Three Gorges, to buy four lots in the latest auction of power transmission lines. The bank is now structuring the funding to finance the project. Altogether, CTG plans to invest about R$3 billion in the projects. The package of infrastructure projects and concessions of the Investments Partnerships Program (PPI) that the government announced this year, expected to amount to R$45 billion, has been attracting Chinese companies.
In addition to banks present in Brazil, other Asian investors are interested in financing infrastructure projects in the country, such as the China-Portuguese-speaking Countries Cooperation and Development Fund and Claifund. There is also expectation that the new Silk Road Fund, with $40 billion in assets, will extend its investments to Latin America.
Along with financing Chinese companies that are investing in Brazil, projects of Brazilian companies that include importing machinery and products from China may count on funds from the Export-Import Bank of China. “The funding of these organizations is in dollars and there is the currency risk, thus the project’s structuring must meet the expectations of return,” Mr. Fernandes, with Haitong, says. Petrobras, for example, took a $10 billion line of credit from China Development Bank last year, of which only $5 billion were disbursed. The company can still tap the remaining preapproved $5 billion.
Chinese banks have been adopting different strategies to come to Brazil. ICBC and Bank of China decided to open their own operations. CCB acquired BicBanco, BoCom bought an 80% stake in BBM and Haitong came to the country by taking BESI’s global operations. Of the largest Chinese commercial banks, the only still without presence in Brazil is Agricultural Bank of China.
There are market rumors that Chinese banks or funds could have interest in a potential sale of Banco Original, the lender of the J&F group, and of Guide Investimentos, an investment platform owned by Banco Indusval.
Source: Valor Econômico