By Tatiana Bautzer
SAO PAULO (Reuters) - Shanghai Pengxin Group Co is in talks to buy control of Brazilian mid-sized lender Banco Indusval & Partners SA, as the Chinese conglomerate wants to expand beyond commodities in Latin America's largest economy, three sources with direct knowledge of the matter said.
Representatives of Pengxin and partners of BI&P (SA:IDVL4), as the specialist in agricultural lending is known, have discussed tie-up scenarios, two of the sources said. The sources requested anonymity to discuss the issue.
Talks are preliminary and may not result in a deal, said the three sources, who spoke in recent days.
Pengxin's search for financial, logistics and commodities firms in Brazil is gaining steam following the $200 million purchase in April of a controlling stake in grain processor Fiagril Participações SA. The Chinese group could spend up to $3 billion in Brazilian targets, sources told Reuters recently.
São Paulo-based BI&P and Pengxin did not respond to requests for comment.
Pengxin has not hired an investment bank as adviser for the BI&P deal, one of the sources said, adding that an internal team handling mergers and acquisitions was looking for targets.
Under terms of the Fiagril deal, Pengxin agreed to supply credit to the grain trader and processor. Acquiring a lender in Brazil with knowledge of agricultural markets and clients could facilitate Pengxin's goals for other agribusiness deals, two of the sources said.
Chinese interest in smaller Brazilian banks has waned as rising defaults and a two-year recession eroded their capital buffer. While some of China's top lenders have planted flags in Brazil in recent years, return on investment has fallen short of expectations amid rising legal and accounting problems.
Pengxin is treading carefully in its efforts to buy a bank, following reports that Chinese purchases of financial companies in Brazil have faced legal and regulatory roadblocks, two sources said.
China Construction Bank Corp is injecting $217 million into CCB Brasil, formerly Banco Industrial & Comercial SA, which it bought two years ago, but has struggled with soaring loan-loss provisions.
Jair Ribeiro, BI&P's chief executive officer and the bank's fifth-biggest shareholder, has met with Pengxin representatives at least twice in recent months in China and Brazil, one of the sources said. Ribeiro did not respond to emails requesting comment.