Banking & Finance

Georgia on my mind

Hualing in pioneering overseas bank deal

Georgia on my mind

Tbilisi: now home to a Chinese-owned bank

The national investment agency for Georgia, Invest In Georgia, has been busy (you might have noticed one of its advertisments in the business press). One of its tasks was to come up with a list of 10 reasons to put your capital to work there. And in first place is its ranking on another list: Georgia’s “meteoric five-year rise” in the World Bank and IFC Doing Business Index (from 112th in 2005 to 11th in 2010).

In fact, Georgia slipped a bit in the latest edition of the rankings, down to 16th, but it is still miles ahead of China in 91st place (the index measures the ease of doing business in a country).

Evidently Xinjiang Hualing Industry and Trade Group isn’t in need of any convincing, having announced its plan to buy BasisBank, Georgia’s eleventh largest bank.

The factors behind the deal? Hualing’s CFO explained to the Financial Times that his company was initially attracted to Georgia by its “beautiful forests”. But he also complimented Georgia’s open approach to foreign investment, with on-arrival visas for Chinese visitors given as an example.

The Chinese company will pay around $100 million for at least 90% of the bank’s equity.

The deal might be small in size, but it is also a landmark for both parties. The buyer, a diversified conglomerate from the northwestern province of Xinjiang, says the transaction means that it will become the first privately-held Chinese firm to acquire a controlling stake in a foreign bank. And for Georgia, the deal is a significant one as it accounts for 10% of the country’s $1 billion foreign investment target for the year, reports the FT.

A private company may be doing the buying, but the takeover might not have happened without governmental backing. Hualing is partially funding the deal with a loan from the China Development Bank. The policy bank, primarily responsible for financing infrastructure projects, stumped up around $48 million, reports Want Times China, suggesting that the central government in Beijing wants the deal to go through too.

One reason for the funding could be that the authorities are looking to promote the use of the renminbi as a trade currency. Hualing’s purchase of BasisBank could be a good platform for experimenting in renminbi trade settlement across the central Asian region.

BasisBank had assets worth $94.5 million as of the end of March and made pre-tax profits of $2.1 million in 2011. Ratings agency Fitch rates it as investment grade, saying that it is one of the only profitable banks in Georgia. Hualing also has previous experience in Georgia, having already invested $100 million in local forestry and furniture factories. It has plans to increase this to $500 million through new projects including marble mining and trade parks. An official at the Chinese embassy in Georgia told 21CN Business Herald that these earlier investments proved “influential” in getting the bank deal approved.

The BasisBank deal comes shortly after news that one of China’s big four banks has finally made headway in the US. Last month, ICBC was given the go-ahead by the Federal Reserve to acquire 13 branches of the US subsidiary of BEA (The Bank of East Asia). The decision is a significant one: it’s the first approval for a large state-owned Chinese bank to take control of a US institution, reports the New York Times. Privately-owned Minsheng Bank looked as though it might be first to take control of an overseas bank, when it announced a plan to up its 9.9% stake in US-based lender UCBH. But the financial crisis intervened and UCBH failed in 2009.

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