4 Banks to Benefit From China-India Deals

NEW YORK (TheStreet) -- Chinaâ¿¿s Bank of China (3988: Hong Kong) and Industrial and Commercial Bank of China Limited, (1398: Hong Kong) and India's ICICI Bank (IBN) and IDBI Bank (IDBI: Mumbai) are likely to benefit from the $16 billion deals signed between India and China this week, aimed at enhancing bilateral trade between the two countries, including banking.

During Chinese Premier Wen Jiabao's visit to New Delhi, several Chinese companies signed deals worth $16 billion with their Indian counterparts. The deals included big names from these Asian giants: Shandong and Tamil Nadu Power signed a deal for $800 million worth of equipment; Aluminum Corporation of China ( ACH) and Vedanta entered into a pact for $330 million worth metals imports; China Development Bank signed a $12-billion pact with Reliance Communications; and telecom operator Huwaei plans to invest $2 billion in a new research facility in two Indian cities. Besides these pacts, the Federation of Indian Chambers of Commerce and Industry (FICCI) has entered into a memorandum of understanding with China Chamber of Commerce for mutual cooperation.

Accompanied by a 200-strong business delegation, Jiabao said China will open up some of its sectors to Indian firms, and explore avenues to increase trade volumes between the two countries. The Indian commerce ministry said bilateral trade with China surpassed $60 billion during the past six years and was more than double the rate of the trade India does with the rest of the world. As the balance of trade lies in favor of China, India is resorting to various measures to reduce the trade deficit. India is pushing for expansion in sectors like infrastructure, pharmaceutical, bio-technology, and healthcare with China, to narrow trade deficit, which is likely to cross $24 billion in 2010.

Bank of China (BOC), a China-based commercial bank, operates through commercial banking, corporate banking, personal banking services, financial market services, and investment banking.

On December 15, 2010, India's Reliance Power announced receiving the final commitment for term loans of $1.1 billion from BOC, China Development Bank (CDB), and The Export Import Bank of China (C-EXIM). The financing is mainly to support the import of power equipment from China-based Shanghai Electric for Reliance's 3,960 megawatt Sasan Ultra-Mega Power Project. Notably, this is the largest financing provided by Chinese banks to an Indian project across various sectors. Of the total, Bank of China will provide $4.5 million through RMB financing in export credit.

As of now, there are no Chinese banks operating in India. However, China's top four government banks, namely Bank of China, China Construction Bank, Industrial and Commercial Bank of China, and Agricultural Bank of China will receive approval for starting commercial operations in India shortly.

Bank of China received a 67% analysts' buy rating, while the remaining suggest a hold. There is no sell rating on the stock. Analysts estimate a 24.5% upside from current levels.

Industrial and Commercial Bank of China Limited (ICBC) is a China-based commercial bank providing personal, corporate, and investment banking services. In the recent deals signed between Indian and China, ICBC, the world;s largest bank by market value, and India-based ICICI Bank signed a $1 billion finance facility.

In its third-quarter financial results, the bank reported a 27% surge in net earnings, driven by rapid asset expansion and recovering net interest margins. The bank said it will pay $180 million for acquiring a controlling stake in French insurer AXA, a Chinese joint venture. This will push the bank into the rapidly growing $100 billion life insurance market, challenging established giants like China Life Insurance ( LFC). The bank is seeking to earn new revenues and diversify its activities. Moreover, ICBC is mulling a plan to open a branch in Spain during January 2011.

In November 2010, as part of its capital hike strategy, the bank closed a RMB 45 billion ($6.76 billion) dual rights issue, raising RMB 34 million ($5.11 billion) in the Shanghai market and RMB 11 million ($1.65 billion) in Hong Kong. The issue yielded RMB 33.67 billion ($5.06 billion) and was 99.72% subscribed.

Of the total number of analysts covering the stock, almost 83% recommend a buy rating, while the remaining suggest a hold. There is no sell rating on the stock. Analysts estimate a 25.6% upside from current levels.

ICICI Bank is engaged in providing a range of banking and financial services operating through four segments, namely retail banking, wholesale banking, treasury, and other banking services.

During Jiabao's recent visit, ICICI Bank signed loan agreements worth $1.5 billion with China's ICBC and China Development Bank. ICBC will provide a $1 billion loan, while the Development Bank will provide the remainder $500 million. The loan will help Indian companies fund imports from China.

ICICI Bank, India's second-largest lender, is targeting an annual sales growth rate of more than 25%, as per a Les Echos report, citing chief executive Chanda Kochhar. The report adds that ICICI is seeking to gain new clients among foreign companies intending to do business in India. Moreover, with the Indian economy estimated to grow at 9% to 10% annually, the banking sector will certainly grow at 25% each year. Kochhar added that if the sector's growth is pegged at 25%, then ICICI Bank would certainly record a higher growth rate.

Meanwhile, Macquarie Securities said the bank's loan growth may grow at 18%-20% levels. Moreover, the financial services company foresees a potential upside in margins, primarily originating from the bank's international business.

Of the total number of analysts covering the stock, 50% recommend a buy rating. Analysts estimate a 25.6% upside from current levels.

IDBI Bank is an India-based commercial bank operating in four segments: wholesale banking, retail banking, treasury, and other banking services.

In the recent effort to increase bilateral trade between India and China, IDBI Bank signed a $1.2 billion loan facility with Bank of China. The bank recently raised deposit rates in the range of 25 to 100 basis points, spread across different maturities. The benchmark prime lending rate increased 25 basis points to 13.75%.

During November 2010, IDBI raised a $125-million foreign currency syndicated loan from the Singapore market to meet the growing demand from the domestic corporate sector for foreign currency bonds. The issue received overwhelming response with more than a dozen foreign bankers keen to participate. Leading banks that participated in the issue were BNP Paribas, The Royal Bank of Scotland ( RBS), StanChart, United Overseas Bank of Singapore, and BoT Mitsubishi.

IDBI Bank is mulling plans to raise $1 billion through bonds in three-four tranches in the overseas market by October 2011. The first tranche of $250-$300 million will be in January 2011 with tenure of 3-5 years to meet credit growth arising out of India Inc.'s expansion plans.

Of the total number of analysts covering the stock, 78% recommend a buy rating, while 6% suggest a hold. Analysts estimate a 28.8% upside from current levels.

This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.

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