China financial firms seek control deals in outbound M&A

HONG KONG, Dec 15 (Reuters): Chinese financial firms are targeting purchases of distressed banking assets coming on the market in Europe, having been urged by Beijing to expand their reach beyond emerging markets.

The first Chinese purchase of a European investment bank was announced this week, with Haitong Securities agreeing to pay 379 million euros ($470 million) for an investment bank in austerity hit Portugal.

Banco Espirito Santo de Investimento SA (BESI) is being sold by Novo Banco, the bank carved out of Banco Espirito Santo after it was rescued in August..

For China's second largest brokerage it's a modest-sized deal, equivalent to just 1.5 per cent of Haitong's market value. But it demonstrates the changing character of acquisitions by Chinese financial firms.

These days they mostly seek controlling stakes, and now they are scouting Europe for opportunities, avoiding anything too big.

"Increasingly, Chinese financial firms are seeking control deals as a way to expand their global footprint," Mayooran Elalingam, head of Deutsche Bank's Asia-Pacific M&A said.

"Several distressed opportunities are available in euro zone economies and we expect the Chinese financial services sector to be active in these situations," he added.

Such deals can help Chinese banks gain treasured European banking licenses as well as expertise, notably in debt markets, that can be transferred back home, whereas growth through opening overseas bank branches can be a slow process.

This year, the government began encouraging Chinese stock brokers and financial firms to acquire greater international reach, according to investment bankers.

"The government is encouraging the outbound M&A push," a Hong Kong based M&A banker said.

The drive for geographic spread reflects China's efforts to build up overseas bank outlets as the yuan currency gains a greater share of global trade.

Haitong's purchase of BESI, Portugal's biggest debt underwriting firm, will give it control of a business that earned 247 million euros in revenues in 2013, according to analysts at Daiwa Capital Markets, and a ready-made investment banking network in Europe.