Legend's Luxembourg tilt is a deal Xi's sure to like

Bloomberg Gadfly columnist, Nisha Gopalan, says the Banque Internationale à Luxembourg (BIL) deal is a sign of how compelling the sector has become.

(Bloomberg) Whatever they say about capital outflows, it's still business as usual in China. So long as government-connected companies do the buying and steer clear of football teams and other "irrational" assets, that is.

Legend Holdings Corp., the Beijing-based conglomerate that owns computer maker Lenovo Group Ltd., is buying a controlling stake in one of Europe's oldest privately held banks from its Qatari owners for €1.5 billion euros, according to a Hong Kong exchange filing. The transfer of the 89.9% interest in Banque Internationale a Luxembourg SA is the latest in a spate of deals that have involved Chinese companies purchasing European financial assets.

Banque Internationale a Luxembourg deal: €1.48 bn

Legend, which took a minority stake in British insurer Pension Insurance Corp. last year, is following in the footsteps of other Chinese conglomerates that have come under scrutiny for debt-fueled purchases. Fosun International Ltd. and Anbang Insurance Group Co. both have interests in European insurers and private lenders, while HNA Group Co. owns part of Deutsche Bank AG.

It's a sign of how compelling the sector has become. Legend, which created Lenovo from its 2005 acquisition of International Business Machines Corp.'s PC unit, says it wants to build a global banking brand as well as a lender to service companies participating in President Xi Jinping's One Belt, One Road initiative.

The real draw, however, lies in managing Chinese residents' money overseas.

Even as China clamps down on corporate borrowing offshore, individuals' wealth outside of the mainland continues to balloon. About 56% of high-net-worth investors surveyed by China Merchants Bank Co. and Bain & Co. had investments outside of China, compared with 19% in 2011, the 2017 China Private Wealth Report released in June showed.

Chinese firms are out to capture a part of this: Lufax, the fintech giant owned by Ping An Insurance Group Co., launched an online money management platform in Singapore in July, while Noah Holdings Ltd., a wealth manager focused on China's second- and third-tier cities, is opening branches in Vancouver and Australia.

Legend has clear state ties. It was established in 1984 with funding from government think-tank the Chinese Academy of Sciences and is 9% controlled by China's National Social Security Fund, data compiled by Bloomberg show. It's a backer of Chinese private equity firm Hony Capital Ltd., which bought UK restaurant chain PizzaExpress Ltd. in 2014, and it's behind venture capital fund Legend Capital.

It's also worth remembering that banks and insurers aren't on Beijing's no-go list. Done by the right companies at the right time, Chinese offshore acquisitions can still be a success. This venerable Luxembourg lender looks to tick all the right boxes.