Negocio da China

Why is Fosun so keen on investing in Portugal?


Portuguese or Putonghua?

When the Portuguese want to describe a money-spinning business deal they call it a “negocio da China”. It is a term which harks back to the sixteenth century shortly after Pope Alexander VI divided the world between the empires of Portugal and Spain. China was ‘allocated’ to the Portuguese who landed in Guangzhou in 1514, salivating at the prospect of the riches on offer.

Relations between the two countries did not get off to a good start. The first Portuguese representative described the Chinese as a heathen race, a “weak people of small account”. The Chinese were equally scathing about the Folanji (Frankish pirates) who reputedly ate small children after steaming them to death over pots of boiling water.

Come the current century and it is China’s turn to flex its global ambitions. Portugal is one of its favoured destinations. According to research by business school ESADE, Europe’s 16th largest country by GDP ranked sixth for Chinese investment in 2015 behind the UK, Italy, France, Ireland and Germany.

The biggest investor by some margin is Fosun. The acquisitive Shanghai-based investment conglomerate has just finalised the €175 million ($185 million) purchase of a 16.67% stake in Portugal’s second largest lender by assets, Banco Comercial Portugues (BCP).

This will make it the bank’s largest shareholder, slightly above Angolan state oil firm Sonangol. Fosun says it hopes to increase its stake to 30% following a board meeting in mid-December, which will decide whether to scrap an existing 20% shareholding limit.

BCP may also give Fosun a springboard to acquire Novo Banco, the ‘good bank’ carved out of the wreckage of Banco Espirito Santo following its 2014 collapse. Haitong, a Chinese broker, purchased the investment banking arm, while Fosun offered to buy the rest of Portugal’s third largest bank for €1.5 billion. Its bid was rejected by the Portuguese government, alarmed at the gap between Fosun’s valuation and a €4.9 billion bailout two years ago. However, BCP is one of five bidders for Novo Banco alongside China Minsheng Bank and a handful of private equity investors.

BCP adds to Fosun’s burgeoning portfolio in Portugal, which also encompasses insurance company Fidelidade; Espirto Santo’s healthcare business, Luz Saude (which includes Lisbon’s largest private sector hospital); and a 5.3% stake in power utility Redes Energeticas Nacionals.

In local social media it is darkly joked that Portugal will soon be renamed ‘Fosunugal’, while one anxious Portuguese commentator has even suggested Mandarin will soon become compulsory in local schools. Indeed, many Portuguese are wary of Chinese investment in their country. Typical of the comments is one blogger who says, “What’s at stake here is the sale of Portugal and that is what makes me very worried. When there is nothing left to sell, we’ll start to be sold as slaves.”

China’s Star newspaper has a somewhat different take. It believes Fosun has picked a good time to hunt for bargains as Portugal emerges from its €78 billion EU-IMF bailout in 2011. It also concludes that, “Portugal welcomes Chinese money unlike Germany.” (See WiC345 for details on Berlin’s more cautious attitude to Chinese M&A.)

Fosun itself has said it wants to use its Portuguese investments to expand into the rest of Europe and to former Portuguese-speaking colonies. For example, BCP has majority stakes in various lenders in Poland, Mozambique and Angola.

Fosun is not immune to debt concerns itself. Chairman Guo Guangchang says the group will shed Rmb40 billion ($5.8 billion) in assets in the next few years to reduce leverage and achieve a coveted investment grade rating that will underpin its growing insurance business. Guo says all new acquisitions will fall into three buckets: health, wealth and happiness. The recent purchase of India’s Gland Pharma covers health; BCP will hopefully equal wealth; while the acquisition of Wolverhampton Wanderers this July was supposed to convey happiness. The British football club’s fans may beg to differ. One of Fosun’s first actions was to draft in three star players from Portugal. Four months and nine lost matches later, Wolves are struggling in the division below the English Premier League.

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