Throughout its history, the Grand Duchy of Luxembourg has been subject to the push and pull of competing regional powers including the Dutch, Belgians, Germans and French.
During the nineteenth century, in particular, the territory ended up adopting one currency after another as modern Europe was taking shape. From 1842 to 1914, for example, Luxembourg adopted the Prussian Thaler before finally issuing its own version of the franc after the First World War.
Banque Internationale a Luxembourg (BIL) became the Grand Duchy’s first indigenous bank in 1856. But if there were one currency its founders never expected to adopt, then it would have been a Chinese one.
Yet at the beginning of the month, BIL was sold to Legend Holdings for €1.48 billion ($1.76 billion) and the reason was all to do with the internationalisation of the renminbi. According to S&P Global Market Intelligence figures, the acquisition was struck at 1.3 times over book value and represents Legend’s largest-ever foreign acquisition (though only just: it paid $ 1.75 billion for IBM’s PC division in December 2004).
The investment group already owns a number of other financial assets including Hankou Bank and electronics payments company Lakala but together they amount to less than 1% of revenue; a figure Legend wants to change. (It also has a non-controlling stake in Minsheng Bank.)
From China’s perspective, the deal also marks the largest overseas acquisition of a deposit-taking institution by a domestic entity. As WiC has repeatedly reported, a number of acquisitive Chinese groups have been snapping up European financial assets, including HNA’s purchase of a 10% stake in Deutsche Bank and Fosun’s acquisitions of Portugal’s Millenium.
This trend looked like it had come to a grinding halt in June when the central government clamped down on debt-fuelled acquisitions. As such, Legend is “taking advantage of a vacuum that’s been left as other Chinese acquisitions are barred,” according to the Financial Times.
Or as Bloomberg puts it, “Whatever they say about capital outflows, it’s still business as usual in China. So long as government-connected companies do the buying and steer clear of football teams and other ‘irrational’ assets, that is.”
The BIL acquisition may yet turn out to be the most important financial one yet. Legend says it wants to finance Chinese companies’ Belt and Road projects in Europe.
But a bigger reason lies in the handling of global renminbi flows including private capital leaving China. A recent Bain and China Merchants Bank survey showed that 56% of high net worth Chinese have assets offshore compared to 19% in 2011.
Luxembourg is also China’s EU pivot. All six of its leading banks have their European headquarters there and the Grand Duchy is now second only to Hong Kong as the world’s largest domicile of offshore renminbi investment funds.
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