(Photo Source: Quan Jing)
Perhaps few people would associate what President Zhu Linan said at the beginning of the year with a famous European bank. At the Annual Results Announcement in March this year, Zhu Linan said that they will spare no efforts to build new pillar assets, which is very likely to be shaped in the financial sector. The real direction of this foreshadowing surfaced when the news of Legend’ acquisition of 89.936% of Banque Internationale à Luxembourg was formally disclosed. That is in line with Zhu Linan's consistent style of conduct: clear strategic plan, unwavering execution of strategy, not much talking, and use actions to honor commitments. By then, there was no suspense about Legend’s pillar-shaping in the financial sector.
The newly-released interim report shows that the financial services, which is the fastest growing sector, generated RMB1.688 billion of operating income with a year-on-year increase of 204%. It also contributed RMB617 million to the net profit attributable to the shareholders of the parent company, the highest among the 5 sectors of strategic investment. This shows that Legend’s extensive investments and deployments over the years is bringing in results. However, compared with domestic investment firms of the same level, Legend is still a bit conservative. In terms of the overseas financial market, Legend’s largest investment so far has been the stake-taking of ￡110 million in PIC, a British pension insurance company, in 2016.
Apparently, Legend has far-reaching considerations in structuring its layout of the financial sector. The stake-taking in BIL can be said to be brilliant. Having been able to win an important financial asset in Luxembourg, which is known as the bridgehead of the European economy, is enough to make people rethink about this Chinese investment firm's capability and ambition in the financial sector.
For Legend, BIL can be a perfect acquisition target. Since 2012, its operating revenue has increased by 20% to €505 million; operating profit has increased by 57% to €124 million. During the same period, its total assets increased to €23 billion, total customer loan increased by 27% to €12.2 billion, and the scale of assets under management increased by 30% to €37.7 billion. Its core Tier-1 CAR rose from 10% at the end of 2012 to 13.4% at the end of 2016. The finalization of the transaction would establish the financial sector as a pillar in the entire investment system, which would mean that such an asset size could improve Legend’s asset-liability structure, and its revenue and profit would bring a positive impact on Legend’s overall performance. While agriculture and food, innovative consumption and services, and financial investment sectors that the company has invested in are all growing well, the rise of the financial sector would undoubtedly have a structural impact on the company’s entire investment portfolio, hence correcting its past practice of over-dependence on IT sector, enhancing its capability in resisting risks, and strengthening its power for business growth, ultimately leading to a new perception of the company’s investment value.
There is no doubt that the good reputation Legend has added weight to the success of the deal. Legend has a lot of business resources and advantages in China and in the world. It also has successful investment in the Fintech field. After the acquisition is completed, the sharing of such resources and experience will definitely further help BIL enhance its core competitiveness. For a bank located in the heart of Europe like BIL, cooperating with a prestigious Chinese company is undoubtedly a safe and sensible choice.
Judging from the direction of the policy, the Chinese government is further guiding and regulating the direction of overseas investment by enterprises and promoting the rational and orderly investment activities. Recently, the “Guidance on Overseas Investments” issued jointly by various ministries and commissions encourages investment in the following areas: a) infrastructure that promotes connectivity in the nearby regions and are in line with the ‘Belt and Road’ Initiative; b) export of superior production capacity, high-quality equipment, and technical standards; c) cooperation with overseas high-tech and advanced manufacturing enterprises; d) exploration and development of energy resources based on careful assessment of economic benefits; e) expansion of agricultural cooperation with foreign countries; and f) cooperation in service sector. Legend’s investment in BIL belongs to the field of financial services. It also has the opportunity to play a role in the ‘Belt and Road’ Initiative and is fully in agreement with the national policy.
It can be foreseen that an offshore bank with a mature operating system and good reputation like BIL will become a financial fulcrum that helps Chinese companies to develop their overseas business and integrate into the local market better. Once this transaction is completed, BIL, a piece embedded in the heart of Europe, will be closely linked with a fast-growing economy. Be it connecting BIL to China’s and other markets’ resources for further innovation and growth, or introducing European funds/advanced technologies/business models to China to invest in industries and enterprises that the Government focuses its support on, there is big room for us to imagine.