By Tim Kiladze
With such a formidable presence in Latin America, it's easy to forget that Bank of Nova Scotia (NYSE:BNS) has a mandate to expand its existing Chinese footprint. While the these Chinese operations are often left out of conversations, they are the largest of any Canadian bank, according to Scotia's head of international banking.
This footprint is only getting bigger with Scotia's purchase of a 19.99-per-cent stake in the privately held Bank of Guangzhou for $719-million. If you haven't heard the name before, Guangzhou has the third largest economic footprint of any Chinese cities after Shanghai and Beijing.
Although the Bank of Guangzhou is privately held, there have been reports that it could go public within three years. Yet even it it does, Scotia will not be able to buy more of the bank in the market. Laws stipulate that a single foreign investor cannot own more than 20 per cent of a Chinese bank.
Because of this rule, Scotia won't be able to build up operational control, but analyst John Aiken at Barclays Capital noted that Scotia's international expertise could help Bank of Guangzhou expand.
The investment is a big step for Scotia in China. In December 2009 the bank increased its stake in Xi'an City Commercial Bank to 20 per cent for $162-million, about one-fifth of what it is paying today. That move was viewed as a way for Scotia to get its feet wet with Chinese banking operations.
Other Scotia investments in China include paying $15-million (U.S.) for a 33 stake per cent stake in a fund management company alongside Bank of Beijing back in 2008.