The Chinese, interested in Erste Bank

A major bank in China is negotiating a partnership or a potential takeover of Erste Bank Austria, sources close to the situation told us. Some people claim that the talks could concern the realization of a partnership between Erste Group and one of the biggest Chinese banks, in order to facilitate its operations in Central and Eastern Europe (ECE). The Chinese financial institution would do business in the region through Erste, which would serve as a liaison.

On the other hand, rumors have made the rounds in the market that the Chinese bank is interested in acquiring Erste Group Bank, an option which our sources rule out, as they say that the bank has a core of shareholders which are interested in its long term evolution and that they are not considering a potential exit.

The collaboration is caused by the growing Chinese interest in Eastern and Central Europe and in the network that the Austrian bank has in the region, the sources said. Erste is present in six countries in Central and Eastern Europe (Czech Republic, Slovakia, Hungary, Croatia, Serbia and Romania), aside from its country of origin. Also, the bank operates in the Community of Independent States, more specifically in the Republic of Moldova, through BCR Chişinău, a subsidiary of BCR.

The largest shareholder of the lender is the Erste Foundation, which owns 15.1% of the capital directly and 8.5% indirectly. Spanish bank Caixa Bank controls 9.1% of the capital, and the Austria Versicherungsverein foundation holds 4.1%. The employees of Erste Bank hold 2.3% of the shares, retail investors hold 6.7% and institutional investors hold 54.3%, according to the data provided by the banks at the end of July.

Following the partnership with Erste, the Chinese bank will be able to conduct currency conversions from yuan to the currencies in the region, and vice-versa, without going through Euros and dollars first, the analysts contacted by "BURSA" told us.

China wants to make the yuan an international currency, and towards that end it has concluded currency swap agreements worth almost 2 trillion yuan with 20 countries and regions, among which Great Britain, Singapore, Hong Kong, Thailand, New Zealand, Argentina and Malaysia, it has launched direct trading between its currency and the Japanese yen and allowing Singapore to offer clearing services in yuan. Currency swaps represent an agreement between two parties in which one of the parties makes payments in a specific currency, and the other makes payments in a different currency on future dates agreed by the maturity of the arrangement.

The largest Chinese bank, in terms of assets, capitalization and Tier 1 core capital (made up of share capital, legal reserves and retained earnings), is Industrial and Construction Bank of China (ICBC), which is also the largest bank on a global level. The second in this ranking is China Construction Bank Corporation, whereas the next positions are held by Bank of China and Agricultural Bank of China, and their exact order varies based on the indicator used as the benchmark.

Over the last few years, China has intensified its relations with the countries in Eastern and Central Europe, relations which had "cooled down" considerably after the fall of communism in the region, as the authorities in Beijing see the ECE as a potential gateway into the European Union.

Our authorities have been trying for a few years now to attract major Chinese investments, as the only project which is at an advanced stage is that of the thermoelectric plant of Rovinari, which is part of the Oltenia Energy complex, valued at 1 billion Euros. The memorandum between China Huadian Engineering and the Romanian state was signed at the end of last year, and the works are scheduled to begin next year at the latest, according to the delegated minister for infrastructure projects of national interest and foreign investments.

Other projects which would present interest to the Chinese are the construction of reactors 3 and 4 of Cernavodă, valued at approximately 6.5 billion Euros, and that of the hydroelectric plant of Tarniţa, of approximately one billion Euros.

Dan Şova visited China in the beginning of this month, during which he met with the executives of the Ministry of Trade in the People's Republic of China, with leaders of major Chinese companies, among which Sinohydro, China Railway 18 Bureau, China Road and Bridge, China Communications Construction Company (CCCC), China Dalian Holding Co., China Civil Engineering Construction Corporation (CCECC), Huawei Corporation, as well as with representatives of the financial institutions such as China Investment Corporation, China Exim Bank and China Development Bank. The latter has asked Romania to conduct, by November, detailed presentations and financial estimates of the investment projects which have priority, in order to begin the future financing procedures, according to the officials of the Department of Infrastructure and Foreign Investments (DPIIS).

In H1 2013, Erste Group posted a net profit of 301.2 million Euros, compared to 453.6 million Euros, in the first semester of last year, amid a 6.1% drop in its operating profit, from 1.75 billion Euros, in H1 2012, to 1.64 billion Euros, in H1 2013.

This summer, Erste fully paid back the investment of 1.76 billion Euros, of which 1.22 from the Austrian state and 540 million Euros from private investors. For repayment, the bank has conducted a share capital increase of 660.6 million Euros.