Corporate China

ICBC enters global mainstream with London bond, new designation

ICBC's successful launch of London's first yuan-denominated bond, coupled with its new designation as "too big to fail", are positioning it to someday become China's first true global commercial bank

PUBLISHED : Thursday, 14 November, 2013, 2:19pm
UPDATED : Friday, 15 November, 2013, 4:22pm

ICBC (1398.HK) has entered the realm of leading global banks, with word that China's top lender has been officially declared "too big to fail" by a major world body, reflecting China's increasingly important role in the world's economy. ICBC's growing importance to the global economy was also evident in its successful issue of the first yuan-denominated bond in London, part of China's efforts to internationalize its currency with major state-owned banks like ICBC and Bank of China (3988.HK; Shanghai: 601988) leading the campaign.

I've written about ICBC's rapid globalization before and personally think it's the most interesting of China's "big four" state-run lenders due to its intelligent global expansion policy. But equally interesting is what this new "too big to fail" designation might mean for the bank's minority investors who buy its publicly traded shares in Hong Kong and Shanghai.

Put simply, this new designation could provide some strong support and upside potential for the shares in the years ahead, acting as a major vote of confidence in ICBC from the global banking community. At the same time, this new designation indicates that ICBC is now not only a problem for Beijing if it starts to stumble, but also a problem for the rest of the world. That could help to spread the risk if ICBC really did run into trouble, as other major governments might be willing to step in and help to bail it out if they felt their own economies were at risk.

According to the latest headlines, ICBC was formally designated this week as a one of the world's systemic banks, an elite group of global lenders whose numbers just grew to 29 with ICBC's addition. In more ordinary language, these are banks that have been deemed too important to the global economy to be allowed to fail, or "too big to fail", by the Financial Stability Board. Bank of China was already on the list, since its role of China's biggest provider of foreign exchange services historically made it one of China's main windows on the global financial world.

This new designation comes just as ICBC has also issued the first yuan-denominated bond offering in London worth two billion yuan (HK$2.5 billion). This particular "dim sum" bond met with very strong demand, attracting four times more subscribers than the actual size of the offer. About 30 per cent of subscribers came from Europe, while the remaining 70 per cent came from Asia, according to media reports.

The bond issue is just the latest major milestone for ICBC in its march to become China's first truly global lender that can compete with the likes of Citigroup (NYSE: C), HSBC (0005.HK; London: HSBA) and JPMorgan (NYSE: JPM). The bank has made a number of major acquisitions and opened branches over the last three years in most global markets, including Asia, the Middle East, Africa, Latin America and North America. It's also reportedly in talks to buy a major new commodities and forex trading business in London from Standard Bank, its main partner in Africa.

Its growing global activities, combined with this new "too big to fail designation", certainly seem to support my previous assertion that ICBC is the most interesting of China's big four lenders. All four will continue to take their orders from Beijing for their domestic business for at least the next five years, and in that sense they won't be very different from each other for their activities in their home market. But as Beijing gradually loosens its grip on these banks both at home and abroad, ICBC certainly looks like the first that could emerge as a truly global commercial player in the next decade.

Bottom line: ICBC's successful launch of London's first yuan-denominated bond, coupled with its new designation as "too big to fail", are positioning it to someday become China's first true global commercial bank.

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