The Chinese banking ICBC evaluates acquisitions in Brazil

In the second week of June, the Chinese Zhao Guicai boarded a bus with about 30 other Chinese and traveled together through five days, 1305mi of Mato Grosso, Acre and Rondônia. The committee, with members of the Chinese diplomacy in the country and corporate executives with local businesses, still had three other presidents of Chinese banks in Brazil, and Zhao, who chairs the local unit of Industrial & Commercial Bank of China (ICBC), the largest financial institution in China and world, with assets of US$ 3.062 trillion at the end of 2014.

The intention was to see the area where the Chinese want to build a transoceanic railroad to connect the region producer of grains in Brazil to the Pacific. The group tasted a lot of dust, met with the governors of the three states and with businessmen of the region, and was impressed by the potential of the project and the interest it arouses in the localities to be impacted. “ICBC will follow the next steps of the project,” Zhao said in an interview with Valor Econômico, indicating that the bank can help finance the venture.

Zhao adopted the name Victor in Brazil and says that the bank analyses local market’s purchase options, but does not comment on a possible interest in HSBC subsidiary.

With space on local balance to give until US$ 1.2 billion in loans, the bank has an exposure of only $ 100 million today. It’s not only the balance that is vacant. The floor of 1.7 thousand meters square rented by the bank in one of the most modern and popular buildings in the Avenida Faria Lima, which also houses Google and BTG Pactual, has only 50 employees (70% Brazilians) and is ready to receive another 100 people.

Through other companies of the group, such as the leasing company, ICBC already has an exposure of US$ 3 billion to Brazilian companies, like JetBlue.
 
The following is the interview that ICBC has requested it would be made by e-mail and approved by the bank headquarters in Beijing.

Valor: What are ICBC plans in Brazil?

Victor Zhao Guicai: The ICBC Brazil strategy is to take advantage of the maximum benefits that the ICBC Group offers and at the same time, enjoy the fact that Brazil is one of the leading economies in the world, following the commercial and financial guidelines, provide a service quality to Chinese companies that are entering the global market, participate in strategic projects involving infrastructure and energy resources in Brazil, and becoming a reference bank in the area of energy resources.

Valor: What is the dimension the bank intends to achieve in Brazil?

Zhao: ICBC intends to expand the business and its services in Brazil. Currently, ICBC Brazil has been using the global platform of ICBC Group and of all the products it offers to meet the needs of Brazilian clients. It’s possible to achieve the expansion of business in accordance with the needs of the clients and the market.

Valor: The bank intends to make an acquisition of a financial institution in Brazil?

Zhao: We never ruled out the possibility of buying a financial institution in Brazil in order to expand the capacity to provide services to the Brazilian market. Until the moment, we have no concrete plans to acquire financial institutions in Brazil.

Valor: Another bank had problems in buying a bank in Brazil. This changes the intent of the ICBC?

Zhao: ICBC has established subsidiaries and branches in 43 different countries and regions. Among them, about more than a half was executed through acquisitions, which have been successful and with satisfactory results in the acquisition process. Therefore, the problems that another bank has faced will not influence in any acquisition strategy of ICBC.

Valor: How much (stock) is the ICBC business with Brazilian companies today, between local balance and global platform?

Zhao: ICBC Brazil has provided a turnover [credit] higher than US$ 100 million to local clients. At the same time, other business platforms of ICBC, as the ICBC Leasing, provided Embraer and other clients financial services in the amount of US$ 3 billion.

Valor: What are the sectors of activity and which are the main clients?

Zhao: Currently, the ICBC Brazil’s businesses are focused on business transactions involving large volumes of commodities, especially agricultural exports. This business, in addition to receiving a high demand from China and other countries, has products internationally consolidated and receive a lot of incentives of Brazilian regulatory agencies. The main clients are leading companies in the agricultural segment Sino-Brazilian in soy branches, coffee, refrigerators, among others; the main operations refer to trade finance.

Valor: What is the limit of the bank’s balance size in Brazil?

Zhao: According to local regulations, the maximum value of ICBC’s risk assets in Brazil may reach 6 times the amount of regulatory capital (leverage limit). Until May 2015, this amount is about US$ 1.2 billion.

Valor: Can ICBC operate in retail banking in Brazil?

Zhao: ICBC Brazil is a multiple bank that currently offers only integrated corporate banking services. However, we are studying the possibility of offering retail banking services.

Valor: What is the difference between ICBC’s strategy and other Chinese banks in the country?

Zhao: Currently, there are four Chinese banks in Brazil: BOC (Bank of China), ICBC (Industrial and Commercial Bank of China), CCB (China Construction Bank), and an office of representation of the China Development Bank (politics bank) located in Rio de Janeiro. The BOC is in Brazil for a longer time, and currently offers retail and corporate banking. The CCB acquired Bicbanco and has many agencies, which main clients are small and medium-sized businesses. The ICBC actually offers just integrated corporate banking services. Although the sectors of BOC and ICBC’s business are different, the target clients are similar.

Valor: What has changed in ICBC’s strategy since the bank came to Brazil in 2012 and what has changed in Brazil?

Zhao: The internationalization process is one of the main strategic points of the ICBC Group in recent years. With growing political and economic importance of Brazil in the world, especially in the rapid commercial development between Brazil and China, it cannot be denied the importance of the Brazilian market for ICBC. The expectation of the ICBC Group regarding ICBC Brazil is not only to enter the market in Latin America but also to become a bridge of economic and trade exchanges and a platform for exchange between Brazil and China.

Valor: HSBC Bank Brazil is for sale. Do you think it might be interesting for a foreign bank?

Zhao: Nothing to declare.

Valor: How do you evaluate the regulatory environment of the Brazilian financial system? How was the process of obtaining a license to operate in Brazil?

Zhao: We recognize and are adapted to the regulatory environment of the Brazilian financial system, which is fair, upright, open, transparent, and exercises its supervisory role in the same way for local and foreign banks. The ICBC Brazil was the institution of ICBC overseas – among 43 countries where we operate – it took more time in the preparation, a total of 2 years and 9 months from the start of preparations for entering the Brazilian financial market, from 2011, until the beginning of operations in September 2013. However, we received great support from the Central Bank of Brazil, the Brazilian financial institutions and clients, for their trust in management capacity, management, operation and international influence of ICBC. Because of the positive attitude and aspiration of ICBC wanting to enter the Brazilian market, the Central Bank of Brazil provided assistance and guidance in the preparation and Brazilian financial institutions and clients also encouraged.

Valor: What is the role of ICBC in the signed package of agreements between the Chinese and the Brazilian government and Chinese and Brazilian companies in May, during the visit of Chinese Premier to Brazil?

Zhao: During the visit, the Chinese government, the Brazilian government and Brazilian and Chinese companies signed a total of 35 cooperation agreements. Of these, 5 were concluded by ICBC. We hope that these agreements are implemented as soon as possible and we believe that trade and investment between Brazil and China will further expand after the implementation of such agreements.

Value: What is your opinion about the signed package of agreements?

Zhao: The agreements mean that the bilateral cooperation Sino-Brazilian can attract more opportunities for foreign investment in Brazil, strengthen production capacity for cooperation of the two countries and promote their development and improvement of population’s life.

Valor: Could you give more details about the fund of US$ 50 billion in partnership with Caixa Econômica Federal? How will it work? Where will invest? When the money will appear?

Zhao: The memorandum of understanding signed between the ICBC and Caixa Econômica Federal is no set amount, it is not the same agreement to set up funds of US$ 50 billion reported in the media. Details of the agreement are being worked out, but the focus is in the areas of agriculture, infrastructure and clean energy etc.

Valor: What do you think about the construction project of transoceanic railroad announced? It is viable? In what time can be executed? The bank is involved in any way?

Zhao: I followed the Chinese Embassy and representatives of some Chinese companies in June, to discuss the way of transoceanic railroad that will be built. The railroad has an estimated stretch of 3107mi long, passing through the states of Acre, Mato Grosso and Rondônia. During the visit, there was much exchange of information with the governors of the three states and population, and this project was well received and supported by local people. The three states are the breadbasket of Brazil and the transoceanic railroad section that is passing through three states is occupied by pasturing and farms, the road is in poor condition, traffic congestion is severe, and due to traffic restrictions, production is limited . The economic and financial benefits will be unlimited once the railroad is built. The first step will be a feasibility study by the Chinese, making a simultaneous environmental assessment of Brazil and Peru. The ICBC will follow the next steps of the project.