Haitong focuses on bridging gap between China and Brazil

Having landed in Brazil in 2015 with the acquisition of Banco Espírito Santo Investimento’s operations in the country, China’s Haitong Securities aims to become the main link between Chinese companies and investors and projects in Brazil, especially in the power industry. 

The firm has just completed the review of its operations in the country, highlighting three major areas. The first is investment banking, with focus on mergers and acquisitions, capital markets, advising companies on concession feasibility studies and project financing. The second area is called markets, with a proprietary trading desk and structuring of hedge products, derivatives, foreign exchange and structured transactions certificates (COEs). The third pillar, still under development, is the creation of mutual funds to bring money to be invested locally.

With the integration and adjustment in its business model, Brazil has gained relevance in the firm because of the country’s size and strategic presence in Latin America. Haitong’s arrival happened when other investment banks were reducing their presence in Brazil during the political and economic crisis. The complicated scenario, however, has created investment opportunities for Chinese companies and chance of expansion for Haitong. 

Opportunities are seen mainly in infrastructure, power, agribusiness and mining, and the Chinese investment bank's idea is to make the link, says Haitong’s president in Brazil, Alan Fernandes. "We’ve started implementing a series of actions that are resulting, especially in Brazil, in greater proximity of Chinese companies, given their interest in the country," Mr. Fernandes says. At the end of 2016, Haitong had R$8.76 billion in total assets in Brazil, and a net profit of R$19 million.

With this focus, Mr. Fernandes says that the pipeline of transactions is growing. The strategy is to use the bank’s strong brand in China to support and bring companies. "We’re translating to them what it’s to operate in Brazil, while we’re in contact with potential Brazilian partners to show how the approval procedures for investments in China work," he says.

Last year, Haitong advised Pengxin on the acquisition of grain trading and processing company Fiagril, of Mato Grosso. Another transaction that is about to be concluded by the bank's advisory department is the acquisition by China Gezhouba Group Co of a stake in a consortium led by Camargo Corrêa and Andrade Gutierrez to build the São Lourenço System of Sabesp, São Paulo’s water company.

But the big focus of Chinese companies is the power sector. In the latest transmission auction, the bank worked with EDP, which has China Three Gorges as a shareholder. The Chinese investment bank carried out all the advisory work for the financial modeling and feasibility study of the auction and now the funding is being structured.

Recent transactions already show the face Haitong will have here: little use of its balance sheet for credit transactions and a lot of financial advisory. Until 2015, under the Portuguese structure, the use of its balance sheet and willingness to take risks were much higher. The crisis and the acquisition have led to a more conservative stance. Loan operations should only be of short term, one and a half year at most, used while the long-term structure is set up.

Another way to bring funding to projects is through partnerships with Chinese multilateral banks such as the China Development Bank and sovereign investment funds. The CLAI Fund, the CLAC (China Latin America Cooperation Fund), the CPD (China Portuguese Development Fund) and the CIC (China Investment Corporation) are some of the funds with which Haitong has partnered to take financing opportunities, structuring of projects or acquisition of assets in Brazil.

"BESI was the way for Haitong to quickly achieve internationalization," Mr. Fernandes says. The Portuguese bank’s acquisition was completed in September 2015 and made Haitong go beyond the Asian continent. Until then, its activity was mainly concentrated in Mainland China, Hong Kong, Singapore, Macau and Malaysia.