Scotia spends $719M for 20% of Chinese bank - Montreal Gazette

Bank of Nova Scotia is buying a chunk of Bank of Guangzhou because of the attractive growth opportunities, but at the same time it's fully aware of the risks of doing business in a country where corporate governance is something of a work in progress.

"I can tell you, we spent a lot of time in terms of due diligence on this particular bank," said Brian Porter, the head of the international banking operation, who added that given the wide breadth of its global operations, the bank is familiar with such challenges.

An understanding of governance standards "is part of what we bring to the table," Porter said in an interview.

Scotia announced Friday it had won a bid to acquire a nearly 20 per cent stake in Bank of Guangzhou for $719 million.

It said the transaction, which remains subject to regulatory approval, will be accretive to earnings in 2012.

Located in Guangzhou, an affluent city of 11 million near Hong Kong in the fastgrowing province of Guangdong, the bank has assets of $24 billion, customer deposits of $16 billion and a network of 84 branches.

As a new owner, Scotia will be sitting alongside the City of Guangzhou, a government entity that holds the other 80 per cent of the shares in the privately held bank.

Chinese law forbids foreign companies from owning more than 20 per cent of a local bank.

Fuelled by rapid economic growth, China boasts some of the biggest banks in the world.

While the sector has proved a darling of investors, many players continue strong links with the government even after going public, which critics say has led to a host of problems including poor underwriting standards and the need for occasional government bailouts.

Most of the Canadian banks have set up operations in the world's most populous country, but they're taking a cautious approach so far.

One of the biggest players, Scotia opened its first representative office in 1982 and now has branches in Guangzhou, Chongqing, Shanghai and Hong Kong.

It has a 15 per cent stake in Bank of Xi'an, a commercial bank in central China, which it plans to expand to 18 per cent.

In contrast to such relatively modest bets, Chinese businesses have invested more than $10 billion in Canadian mining and energy companies over the past two years, according to the Asia-Pacific Foundation.

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