Last week Chinese banks appeared in transactions across the EM space with deals signed in Africa, the Middle East and Russia. Bank of China and Industrial and Commercial Bank of China are working as lead banks on a new loan for the Omani ministry of finance, the size of which is $3.6bn, according to Dealogic.
In South Africa, Nedbank closed an oversubscribed $450m loan with Bank of China and ICBC as mandated lead arrangers on the deal.
In Russia, the region’s biggest coal producer signed a $1bn pre-export finance facility with Bank of China and China Construction Bank as mandated lead arrangers.
This wasn’t the first PXF deal Chinese banks took part in this year either.
At the beginning of the month, steel manufacturer Metalloinvest and fertiliser producer Acron signed PXFs for $1.05bn and $750m respectively, with Bank of China and ICBC mandated lead arrangers on both, and joined by China Construction Bank on Metalloinvest's PXF.
“We want to be a top 20 bank in terms of league table performance,” said a banker from a large Chinese bank who covers the EMEA region. "We’re going for bigger tickets, bigger underwrites in strategic transactions. We count the international banks as our competitors, not necessarily the other Chinese banks."
Their Japanese counterparts Sumitomo Mitsui Banking Corp, Mizuho and MUFG have also vaulted up the EM loans league table in recent years. 2015-2017 compared to 2007-2010. In the 2007-2010, they were 10th, 32nd and 9th in the league table, respectively, while in 2015-2017, they are third, fourth and fifth respectively, behind only HSBC and Citigroup. Their combined market share has doubled, from 4.7% to 10.5%.
The Chinese may be lagging behind but are catching up. Bank of China was 17th in the table 10 years ago, with a 1.4% market share. It is now 13th with 2.5%, ahead of BAML, Commerzbank, Barclays and Deutsche Bank.
The increase in deals has in part been spurred on by the Chinese government’s One Belt, One Road initiative, announced in September 2013, aimed at building infrastructure to connect China with Western markets through modern equivalents of the ancient silk roads.
The banks, however, are keen to make it clear they're not just pawns of the Chinese state.
“We are a state-owned bank but we are a commercial bank," said the banker at the Chinese firm. "The strategy of the government is obviously important to the bank, but clearly it has to make commercial sense.”
But while Chinese banks may consider themselves competitors to the other international players, their conservative nature — and their lack of broader international investment banking infrastructure makes them different.
"Our risk appetite is relatively conservative, it’s not our position to jump in. We will never look at a transaction on a standalone basis, it’s all relationship-driven. We look at what we can do in the long term.”
But for a relationship-driven business to pay its way in the loans market, they will need to capture ancillary business commensurate with the balance sheet they are extending, and that will prove challenging. The major Chinese firms are building up bonds teams, sales teams, coverage and trading, but they're starting from a low base.
That means, to make their grab for EM loans pay, they'll need to curb their growth rate — and make sure the balance sheet swells at the same speed as their market share in fee business. The deep pockets of the Chinese majors guarantees they will continue to grow. But the speed of their expansion should stay steady.