Mergers & Acquisitions in the domestic financial services sector

Transcription

1 Mergers & Acquisitions in the domestic financial services sector December 1, 2006

2 Why China? Market Potential A fast growing economy with approximately 1.3 billion in population RMB appreciation RMB appreciation is also fuelling investments into China (e.g. property sector) Market consolidation Low production costs Educated workforce International foreign firms with the experience and expertise believe in becoming a consolidator in the China market Low labor costs, improving skill set and quality of production, China has become the world factory for almost anything and everything Government support together with overseas returnees have given China an educated workforce for growth

3 China s recent development & outlook China s GDP will grow by a CAGR of 11.9% for the next 5 years China s growth is building wealth for its people US$ mn Estimates % Growth No. of people (mn) Estimates US$ 40, % 1,360 14,000 35,000 30,000 25, % 10.0% 10.1% 10.2% 10.5% 9.6% 9.3% 8.8% 8.5% 8.1% 10.0% 8.0% 1,340 1,320 12,080 10,990 9,940 8,960 12,000 10,000 8,040 8,000 20, % 1,300 7,180 15,000 10, % 1,280 4,990 4,540 5,610 6,340 6,000 4,000 5, % 1,260 2, % 1, A 2003A 2004A 2005A 2006E 2007E 2008E 2009E 2010E 2011E 2002A 2003A 2004A 2005A 2006E 2007E 2008E 2009E 2010E 2011E GDP Real GDP Growth Source: EIU (at current market prices) Population (m) Source: EIU (US$ at PPP) GDP per capita

4 China s recent development & outlook (cont d) Fixed asset investments will continue to grow as GDP continues to rise US$ mn Estimates % 20, % China ranks No. 1 globally for foreign direct investments US$ bn Estimates % % 18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2, % 40.4% 40.6% 42.1% 44.3% 45.3% 46.5% 47.7% 48.4% 48.9% 50.0% 40.0% 30.0% 20.0% 10.0% % 40.0% % 35.0% 33.3% 30.9% 30.0% 28.3% 24.6% 25.0% 20.0% 15.0% 14.3% 10.0% 5.1% 5.0% 3.3% A 2003A 2004A 2005A 2006E 2007E Gross fixed investment ("GFI") Source: EIU (at current market prices) 2008E 2009E 2010E 2011E GFI as % of GDP 0.0% 0 0.4% 2002A 2003A 2004A 2005A 2006E 2007E 2008E 2009E 2010E 2011E Inbound Investments Outbound Investments as % of Inbound Investments Source: EIU (US$ at PPP) 0.0%

5 Inbound & Outbound Completed M&As Number of Inbound M&As has far outweigh outbound M&As for the past 3 years No. of deals 350 Transaction value of outbound M&As completed is on an increasing trend US$ mn 20,000 18, ,000 16, , , ,000 8,000 8,910 8,191 6, ,000 4, ,000 2,000 1, A 2005A 2006A 2004A 2005A 2006A Inbound Outbound Source: Thomson One Banker (Jan 2004 to-date) Inbound Outbound Source: Thomson One Banker (Jan 2004 to-date)

6 Inbound M&As Inbound investments into China have been dominated by the financial sector for the past 3 years The U.S. continues to lead the way in making investments into China 1.8% 1.9% 2.6% 3.1% 4.8% 3.1% 1.7% 1.8% 1.8% 2.6% 1.6% 6.7% 6.4% 2.8% 37.8% 10.7% 6.9% 55.7% 13.8% 11.3% 21.3% Finance Consumers Staples Industrials Materials High tech Real estate Retail Health Consumer products/services Others Source: Thomson One Banker (Jan 2004 to-date) United States United Kingdom Singapore Hong Kong Australia Belgium South Korea Japan France Netherlands Others Source: Thomson One Banker (Jan 2004 to-date)

7 Assets by Ownership Czech Republic Poland Hungry China 90% 81% 80% 78% 10% 19% 20% 22% Czech Republic Poland Hungry China 3% 8% 20% 83% 92% 97% 80% 17% South Korea Chile Brazil Peru 15% 32% 55% 50% 85% 68% 45% 50% South Korea Chile Brazil Peru 12% 33% 16% 18% 88% 67% 84% 82% State owned Privately owned State owned Privately owned Source: Central banks of countries shown; McKinsey

8 Financial Institutions

9 Loans Analysis Loans as Mortgages % of GDP as % of GDP Hong Kong N/A Singapore United States Malaysia South Korea Chile India China Consumer Corporate Government 1 For some countries, loan split not available at commercial-bank level general data were normalized to match commercial-loan total 2 Includes only government loans; figure would be significantly higher for India if government bonds were included data; includes securitized loans and loans from nonbanking institutions 4 Figures do not sum to 100%, because of rounding Source: *Top 200 Asian Banks 2004, The Banker; The Industrial Map of China , Japan; Nihon Keizai Shinbu; McKinsey

10 China Banking Landscape Assets, US$ billion Return on assets, % Distribution of new local-currency lending, % 100% = US$260 billion Industrial and Commercial Bank of China* Bank of China* China Construction Bank* Agricultural Bank of China Urban commercial banks 6% Credit cooperatives 12% Bank of Communications* China Merchants Bank* CITIC State Commercial Banks (Top 4) 47% Policy banks 13% China Everbright Bank Shanghai Pudong Development Bank* China Minsheng Banking* HSBC* 71 1, Joint-stock commercial banks 22% Citigroup* 1, Source: * Based on latest available information Bloomberg, IBES estimates, *Top 200 Asian Banks 2004, The Banker; The Industrial Map of China , Japan; Nihon Keizai Shinbu; McKinsey

11 Market Participants

12 Big Four Snapshot

13 Recent Banking M&A Bank Assets CAR NPL Timing Investor Stake Price P/BV ($bn) (%) (%) (%) ($m) (X) CITIC Bank Nov-06 BBVA x CITIC International Financial Holding Nov-06 BBVA x Guangdong Development Bank Nov-06 Citigroup Consortium , x Shanghai Rural Commercial Bank Nov-06 ANZ x China Citic Bank Apr-06 Citic Int'l Financial x Bank of China Mar-06 NCSSF 3.9 1, x Ningbo City Commercial Bank Jan-06 OCBC x Shanghai Pudong Development Bank Dec-05 Citigroup Tianjin City Commercial Bank Dec-05 ANZ Huaxia Bank Oct-05 Deutsche Bank x Oct-05 Sal Oppenheim x Shenzhen Development Bank Sep-05 GE Capital Bohai Bank Sep-05 Standard Chartered Huaxia Bank Sep-05 Pangaea Capital Management x Industrial and Commercial Bank of China Aug-05 Goldman Sachs 5.7 1,700 - Aug-05 Allianz 3.3 1,000 - Aug-05 American Express Bank of China Aug-05 Asian Development Bank x Aug-05 UBS x Aug-05 Royal Bank of Scotland 9.6 3, x Aug-05 Temasek (Asia Financial HD) 4.8 1, x China Construction Bank Jun-05 Bank of America 9.0 2, x Jun-05 Temasek 5.1 1, x China Everbright Bank Jun-05 Asian Development Bank Source: Independent Analyst Reports

14 M & A

15 Continuing driving force behind Inbound M&A? Domestic restructuring Breakup of monopolies and consolidation in fragmented sectors Private equity Regulatory Changes Significance of private equity investing into China thereby continuing to fuel M&A activities Regulatory changes has reinforced foreign investors confidence in the market sparking M&A activities

16 Outbound M&As The energy sector has been the biggest acquiror of offshore assets 1.3% 1.6% 1.9% 3.1% 0.5% 1.6% 2006 CITIC Group announced the acquisition of Kazakhstan oil assets from Canadian-based Nations Energy for US$1.9 bn 7.9% Energy/Power Consumer Products/Services High Tech Real Estate 82.0% Industrials Financials Media/Entertainment Others 2005 CNOOC acquired a 45% interest in an oil block off the coast of Nigeria from South Atlantic Petroleum for US$2.3 bn Sinopec acquired an oil-producing unit of BP Plc joint venture TNK-BP, OAO Udmurtneft in Russia for US$3.5 bn CNPC paid US$4.18 bn to acquire PetroKazakhstan, but later sold 33% to Kazakhstan s s state-owned firm KazMunaiGaz to assist in getting government approval Source: Thomson One Banker (Jan 2004 to-date) Source: Thomson One Banker, Factiva, Bloomberg

17 M&A vs Organic Growth M&A Joint Ventures Pros Immediate expansion of product range, team, and geographical coverage Increase market awareness for foreign player Immediate increase in revenue base Minimal outlay Immediate access to domestic market Good for markets with growth opportunities that a company either cannot or does not want to pursue on its own Cons Difficult to identify and securing the right platform Difficulty in retaining skilled management Integration of team, culture and infrastructure Immediate increase in cost base Regulatory restrictions/hurdles Difficulty in finding the right partner Difficult to harness the strengths of both sides Potential conflicts of interests Organic Growth High flexibility Relatively quick process if regulations permit Require enormous amount of capital with no guarantee of success Alien operating environment Regulatory restrictions

18 M&A Rationale Horizontal vs Vertical extension Geographic and/or product extension Industry consolidation Bargain Hunting (distressed assets) Strategic Alliance (normally coupled with a minority investment) Liquidity / Financing

19 M&A Mechanics First steps Target identification / Business rationalization / restructuring Transaction structure Majority vs Minority; Share or asset acquisitions; Share subscription; Reverse takeover & Listing Status Shareholding vs management control Management retention; Veto power; Non-compete; Exclusivity Pricing vs Valuation Paid-Up Up-Capital vs Earnings driven valuation Industry specific valuations (project vs company) Due diligence Documentation Strategic; Operational; Technical (depending on industry); financial; legal; human resource Sale & Purchase Agreement; Share Subscription Agreement; Technical Assistance Agreement; Joint Venture / Strategic Alliance Agreement

20 Trends

21 M&A Trends 5 Trends Emerging I. Foreign companies continue to aggressively invest into China (e.g. Citigroup) II. III. IV. Chinese companies buying offshore (e.g. CNOOC, CCB, Suntech Power) Consolidation in Chinese companies is beginning (e.g. ) Investment into A Share listed companies V. Foreign companies disposing of their assets in China/Asia

22 Recent Outbound M&A 2006 CITIC Group announced the acquisition of Kazakhstan oil assets from f Canadian-based Nations Energy for US$1.9 bn (Pending) Suntech Power acquired two-thirds thirds equity interest in MSK Corporation for US$107 mn to tab into its extensive PV Module sales & distribution network in the key Japanese market (Pending) CNOOC acquired a 45% interest in an oil block off the coast of Nigeria from South Atlantic Petroleum for US$2.3 bn (Completed) China Construction Bank acquired 100% of Bank of America s s Hong Kong retail operations for approximately US$1.24 bn (Pending) 2005 Sinopec acquired an oil-producing unit of BP Plc joint venture TNK-BP, OAO Udmurtneft in Russia for US$3.5 bn in 2006 (Pending) Lenovo acquired IBM s s PC division for an enterprise value of US$1.75 bn. Lenovo paid US$650 mn in cash and US$600 mn in securities and assumed all outstanding debt of the business (Completed) CNPC paid US$4.18 bn to acquire PetroKazakhstan, but later sold 33% to Kazakhstan s s state- owned firm KazMunaiGaz to assist in getting government approval (Completed) China Netcom acquiring 20% of Hong Kong based PCCW for US$1 bn (Completed)(

23 Recent Outbound M&A (failed attempts) China Mobile s s attempted US$5.3 bn acquisition of Millicom International Cellular SA of Luxembourg, operator of mobile-telephone services in many of the world's poorest nations (Failed) Haier withdrew its attempted US$1.25 bn bid for Maytag Corp of the t U.S., a manufacturer of innovative and dependable energy efficient kitchen appliances and d clothes washers (Failed) CNOOC s s US$18.5 bn attempted merger with Unocal of the U.S. was faced with strong opposition from the U.S. government on security concerns (Failed)

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