 "Cyrus Mistry")
Tata Sons formed a long-term partnership with the world’s largest lender Industrial & Commercial Bank of China (ICBC) on Wednesday and declared it would be a strategic banking partner.
As per the alliance, ICBC would provide Tata Group with financing products, global cash management, consulting, international trade finance business, investment banking, foreign exchange, derivatives trading, and other global financial services.
“This will help the group access cheap Chinese funds,” said a person familiar with group’s plans. “It will be useful at a time when the group is aggressively expanding across the continents,” the person said.
The alliance between would cover geographies such as India, China, Singapore, Europe, US, and South America. Tata Group garners close to 70 per cent of its $109-billion revenue from international operations.
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Also, the Chinese market is the largest-selling market for the Tata Motor's luxury car Jaguar Land Rover. Until a year ago, China contributed close to 29 per cent of the total sales, which has now dropped between 15 per cent and 20 per cent due to slowdown in the Chinese economy.
ICBC is also expected to create a global service team that would support Tata Group’s strategic development plans. Tata Group would consider proposals from ICBC and solicit its participation on bilateral transactions and tender offers.
A team of Tata executives, led by chairman Cyrus P Mistry, met with Jiang Jianqing, chairman from ICBC, and his team to formalise the engagement.
It is not for the first time that the group has got into such a tie up with a bank. Though, such an announcement has been rare. Last month, the group announced to have received $500 million annual financing support from Export Development Canada for Tata companies who have Canadian small and medium enterprises in their supply chain.
As part of Cyrus Mistry’s Vision 2025, the Tata Group aims to be among the top 25 globally by market value within 10 years and targets to get its products and services to a quarter of the world’s population. In 2014, Mistry earmarked $35 billion to carry out this plan, with a special focus on building group’s retail, infrastructure, finance, defense and aerospace businesses. The group has a total debt of $37.5 billion.
With many U.S. and European banks turning more selective in the Asian market, large regional banks such as ICBC are stepping in to fund the expansion plans of big business groups. Also the Chinese lender is expanding at a time local banks are struggling to clean up their balance sheets amid the slowest pace of loan growth in 20 years.
The lender with more than $3.5 trillion in assets is looking at overseas markets as the weakening Chinese economy threatens its asset quality and profitability. ICBC generates 94 per cent revenue from domestic operations. But, is ramping up its Indian presence as the third-largest Asian economy expanded at a world-beating 7.4 per cent pace in the three months, compared with China’s 6.9 per cent.
“This shows ICBC’s ambitions to grow their franchise as a global player," said Singapore-based Gaurav Arora, head of corporate and institutional banking for India at Greenwich Associates. "This also suggests a fundamental shift in strategy to serve more non-Chinese mega conglomerates.”
With many US and European banks turning more selective in the Asian market, large regional banks such as ICBC are stepping in to fund the expansion plans of big business groups, Arora said.
(With inputs from Bloomberg)
