Singapore - Resource-hungry Chinese firms eager for a slice of Africa's mineral wealth are opting for joint ventures over mergers and acquisitions to limit costs in the face of fragile global growth, a Bank of China International official said on Wednesday.
As a merger and acquisition frenzy driven by the commodities boom has all but faded, a new mantra of keeping costs low has taken hold of China's resource companies, as the country's urbanisation plans continue to feed demand for raw materials.
They are now prioritising stable - if slower - growth, through ties with local partners, and Africa is squarely in focus.
“Africa is more and more interesting, and important for miners and projects,” Amy Cheng, a managing director in BOCI's investment banking division, told Reuters in an interview.
“The biggest attraction is asset quality. In the Democratic Republic of Congo there are a lot of copper, nickel and base metals projects that are high quality. Even though there is a big risk there, they will still invest,” said Cheng, who handles natural resources and mergers and acquisitions.
DRC only produced around three percent of global copper supply last year but it has one of the world's richest deposits of the metal. Unrest has grown with rebels in the east and fighters in the southern Katanga region, Congo's economic engine, moving out of their base and towards mining areas.
Bank of China International is the investment banking arm of state-backed Bank of China , the country's No.4 lender by market value, with a market cap of $130 billion.
Funds under the investment bank's natural resources division fell to 200 million Hong Kong dollars ($25.78 million) in 2012 from the year before, due to a drop off in merger activity. The bank did not specify the 2011 figures.
“Last year, IPOs stopped. If the markets recover, maybe we can double our business. But you can't count on M&As. Maybe 20 to 30 percent growth, I hope,” Cheng said.
The trend in the DRC reflects Chinese companies' approach to international resource investments.
Copper-rich Chile and Peru, as well as Argentina, are in focus for BOCI's project funding pipeline, while North American investment tends to be focused also on energy, oil sands and iron ore, she said.
“A lot of smaller companies with factories in China are building joint ventures, for investment and offtake,” Cheng said, adding the overall value of these deals has declined from two years ago.
LOOKING GLOBAL
BOCI is looking to expand beyond its core clientele of state-backed mining and metal behemoths such as China's Aluminum Corporation of China (Chalco) , the listed arm of state-owned aluminium giant Chinalco, to international companies as it looks to fuel growth.
It wants to nurture ties with global resource sector leaders, especially Fortune 500 companies such as Rio Tinto and Freeport McMoRan Copper and Gold.
Besides resources projects, it seeks to help global firms list in Hong Kong, having sponsored and underwritten top aluminium producer RUSAL's 2010 float.
It has also advised resources firms such as Ivanhoe and coal miner SouthGobi Resources Ltd , helping a struggling resources sector tap Chinese investors.
“They are looking for investment in Asia. We know which investor should be interesting for them, and should have the ability to buy,” Cheng said.
BOCI became the first Chinese member of the London Metal Exchange in April, 2012, ahead of the exchange's takeover by Hong Kong Exchanges and Clearing in December. - Reuters