Last updated: October 30, 2013 9:41 am

China Construction Bank closes in on Brazil’s BicBanco

China Construction Bank is poised to clinch its first international banking deal as it closes in on Brazil’s BicBanco, a São Paulo-based lender with a market value of R$1.7bn ($780m), according to people close to the situation.

The Chinese bank, which has long been seen as next in line to pursue an international expansion following Bank of China and ICBC, is in talks to take a majority stake of about 70 per cent from the controlling Menezes de Bezerra family shareholders. It would then tender for the rest of the shares.

CCB told the Financial Times last year that it had up to $15bn to spend on acquisitions, but people close to the bank, China’s second-largest lender, said it remained conservative about the size and type of any potential investments, as well as the price.

Chinese banks, like their Japanese peers, have tended to expand into markets where companies that are domestic customers are investing. Banco Industrial & Comercial (known as BicBanco) fits this pattern as a number of Chinese companies have already moved into Brazil in areas such as energy, where PetroChina and Cnooc were part of a consortium that won a bid for an oilfield this month.

ICBC has been the most active overseas of the big Chinese banks, first taking a 20 per cent stake in Africa’s Standard Bank for $5.5bn in 2007, then using that relationship to later acquire its Argentine subsidiary.

Three Gorges, one of China’s big electricity companies, made a similar move with investments into Brazil via a stake in EDP, the Portuguese utility. State Grid has also made big Brazilian investments.

A deal between CCB and BicBanco could be announced as soon as the end of this week, although two people close to the deal said that nothing was set in stone. One of the people said the talks were not as advanced as some earlier media reports had suggested.

Analysts reckoned that a deal would make sense strategically, but there was some scepticism about the timing. “I would question whether Brazil is past its economic prime and what that means for the kind and quality of loans on the bank’s book,” said one Hong Kong-based analyst. “Eike Batista is just the tip of the iceberg in terms of bad debts.”

Brazilian tycoon Mr Batista’s flagship oil company OGX is on the verge of a bankruptcy that would trigger Latin America’s biggest-ever corporate default, after talks with creditors collapsed.

CCB’s move comes against a backdrop of an economic slowdown in Brazil that has meant asset prices have fallen over the past few years. BicBanco shares hit a peak of more than R$17 at the end of 2010, but then fell back to about R$3.50 by mid-2013. Since early August, the stock has doubled, to trade at R$7.05 on Tuesday.

CCB did not return calls seeking comment, while BicBanco could not be reached.

Citigroup, which is advising BicBanco, and Morgan Stanley, advising CCB, also declined to comment.

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