DealZone

Chinese banking giant ICBC may be about to get a run for its money from small band of minority investors. Its plan to take full ownership of Hong Kong subsidiary ICBC Asia makes sense. But the unit's minorities are in a strong position to make ICBC pay top whack.

ICBC already owns 72 percent of the unit. But it can't grow its offshore business significantly without having 100 percent. Meanwhile, ICBC Asia needs more capital. For ICBC, the required investment doesn't look like a problem. It's the world's biggest bank by market value and will soon get $6.6 billion from a rights offering.

The question is what the minority interest is worth. China Merchants Bank got investors excited by paying 3.1 times book value for Wing Lung bank in 2007 -- an 82 percent premium over ICBC Asia's current valuation on the stock market. But Wing Lung was sold in an auction at the top of the market.

Citic Group's 2008 privatisation of its Hong Kong unit would be a more suitable comparison. The buyout was offered at 1.6 times historic book value, a 21 percent premium. A similar premium would value ICBC Asia $1.3 billion, or 2.1 times book value -- higher than most small banks in Hong Kong. That price would be also 18 percent above the stock's historical high.

Privatisation proposals in Hong Kong require that no more than 10 percent minority shareholders are in opposition. That could pose a problem for ICBC, as three funds alone make up of 26 percent of ICBC Asia's minorities. ICBC can't dilute their influence either, as Hong Kong listing rules require a minimum 25 percent free float.

The markets cheered China’s move on the yuan but its not all good news reports Scott Malone. Risks abound.

For the corporate winners and losers here is a quick breakdown. WSJ has graphics on winners and losers here.

Chinese policy is often viewed with a healthy dose of skepticism but on this occasion the distrust is unwarranted, Forbes reports. A firmer yuan is beneficial to China and the new policy sends a signal that the country is confident in it prospects going forward.

Having taken a nibble at the Chinese insurance market in December, helping number three life insurer China Pacific Insurance list a $3.1 billion IPO in Hong Kong in December, Goldman Sachs is taking a bigger bite at that most promising and enticing of global investments, China’s financial products industry.

Sources tell us that an investing arm of Goldman is in the final stages of an agreement to buy AXA’s $1.05 billion stake in Taikang Life, China’s No.4 life insurer. The deal would allow France’s AXA to shed a non-core asset, while granting Goldman a piece of China’s growing insurance industry, report George Chen and Michael Flaherty.

Several private equity firms, including Kohlberg Kravis Roberts & Co and Blackstone Group, competed in the Taikang auction, as did Singapore’s Temasek Holdings, sources have told them.

Rather predictably,  the probe into Goldman Sachs overshadowed the group’s first quarter results on Monday. Somewhat less predictably, Goldman’s rivals have been using the furore to elbow in front of the leading Wall Street bank. As an example, rival investment bankers have been lobbying authorities in China to drop Goldman as an underwriter for the more than $20 billion IPO of state-owned Agricultural Bank of China.

Australia and New Zealand Banking Group (ANZ) is preparing to bid for Lone Star’s $4bln controlling stake in Korea Exchange Bank, the nation’s sixth largest lender. The news of the arrival of unexpected contender for the U.S. private equity firm’s stake helped send shares in the bank 3 percent higher.

For more Reuters’ deals news, click here.

In other media:

Google is in talks to buy travel software manufacturer ITA Software Inc, Bloomberg reported. A deal could value ITA, whose programs are used by Orbitz Worldwide and Microsoft, as about $1 billion.

Swiss commodity trader Glencore buys back its prized Prodeco coal operations in Colombia from mining group Xstrata. Analysts reckon the deal is worth around $2.5 billion to $2.7 billion — making it an easy decision for Glencore to exercise its option to buy as it values the mines at $4-$5 billion, a source says.

China Life Insurance Co, the world’s biggest life insurer by market value, is looking to buy a bank, its chairman says. It
would be following peers as China relaxes restrictions on banks and insurance companies investing in each other.

In other M&A and corporate finance news reported by Reuters and other media on Friday:

Morgan Stanley has found buyers for its stake in Chinese investment bank China International Capital Corp, CICC Chairman Li Jiange says. The firms have reached a consensus regarding the stake sale and the deal was awaiting regulatory approval.

UK defence services firm VT Group walks away from bidding for smaller rival Mouchel, leaving it free to focus on its own takeover defence from Babcock.

In other news:

China Development Bank, a powerful, state-owned Chinese bank, says it will review its strategic tie-up with Barclays, including its equity stake in the British bank after more than two years in a low-profile relationship.

As a political move, raising the taxes on private equity firms seem a no-brainer but as Megan Davies and Kim Dixon report, gaining tax dollars from the easy target may not be a simple process.

The tax is likely to be a hot issue at one of the private equity industry’s biggest conferences, Super Return International, which starts on Tuesday in Berlin and is attracting heavy hitters from major American buyout firms such as Carlyle and Apollo.

More PE news:

Long list of buyout firms pursuing European deals (Reuters) Local buy-out firms defy US groups in China (FT) Private equity bids for KDG: sources (Reuters) Bain raises $525 million for new venture fund (Reuters) Denmark’s ATP to up hedge funds, private equity: CEO (Reuters)

Walt Disney is leading a group effort to buy into China’s largest bus-based digital media and advertising company, Bus Online. The investment would be peanuts for Disney, but the headache could wind up being jumbo sized because one of their investors in the bus deal, sources tell us, is Google.

Google threatened to quit China only a few weeks ago and the internet search giant is finalizing a deal that will let the U.S. National Security Agency (NSA) help it investigate the corporate espionage attack it thinks originated in the People’s Republic. China has warned the U.S. not to make politics out of the Google issue, but it may be too far into the saber-jangling season for that, with Barack Obama having announced fresh U.S. weapons sales to Taiwan in his State of the Union address.

Though Google’s stake in the Bus Online deal is said to be small, even smaller than the tiny investment this will be for media giant Disney, it could just be big enough to cause headaches for Mickey and Co.

Is China First Heavy setting its $1.67 billion Shanghai IPO price below the top of its range a sign of growing realism as markets weaken and regulators demand more rational pricing?

Reuters’ Samuel Shen and Edmund Klamann report mainland IPOs are confronting a market that is sagging under the weight of heavy share supplies, fed by authorities who have approved a steady stream of new share issues to keep the market cool and avert asset price bubbles.

The FT has a story on Bejing possibly putting a clamp on “irresponsible” IPO pricing.  See the FT’s blog on the issue as well.

Three U.S. private equity firms have been shortlisted to buy Morgan Stanley’s more than $1 billion stake in China International Capital Corp, a holding the Wall Street bank has been trying to sell since late 2007.

Kohlberg Kravis Roberts, Bain Capital and TPG Capital are competing to win the chance to acquire a stake in China’s best known and most profitable investment bank, sources tell Reuters.

In other M&A and corporate finance news from Reuters and other media on Tuesday: