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OCBC Bids US$5b In Biggest HK Bank Offer Since 2001
Perspective | 03 April 2014
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Oversea-Chinese Banking Corporation (OCBC) offered HK$38.4 billion (US$5 billion) to buy Wing Hang Bank in the biggest takeover of a Hong Kong lender since 2001 to gain a foothold in the expanding Chinese financial hub.

Southeast Asia’s second-largest lender will pay HK$125 a share in cash, it said in a statement on 1 April. That represents a 1.6 percent premium to the last traded price on 28 March. The family of chairman Patrick Fung, Bank of New York Mellon Corporation and other shareholders holding a combined 50.7 percent of Wing Hang have accepted the offer, according to the release.

The acquisition will give OCBC more access to China-related business in a city that is the biggest centre for offshore yuan trading. It’s the largest takeover of a Hong Kong bank since DBS Group Holdings, OCBC’s largest competitor in Singapore, offered US$5.3 billion for Dao Heng Bank Group in April 2001.

“OCBC’s really trying to gain a very strong foothold in Hong Kong to catch up with DBS,” Benjamin Ong, an analyst at Phillip Securities, said by phone. “Hopefully this gives it a valuable platform to grow its own product line. It’s still unclear how much Wing Hang will help OCBC tap into the offshore yuan market.”

Wing Hang Bank’s investors will be entitled to a dividend of as much as HK$0.46 per share if the takeover is approved by stockholders, according to the statement. The lender’s stock surged 49 percent in the year through the week ended 28 March.

Exclusive Talks

OCBC secured preliminary approval from the Hong Kong Monetary Authority (HKMA) for the acquisition, people familiar with the matter said on 28 March, leading to an 8.9 percent surge in Wing Hang shares before trading was halted that day. The Singaporean bank entered exclusive talks with Wing Hang’s largest shareholders last year.

The offer is 1.8 times Wing Hang’s “consolidated net book value” as of 31 December 2013, OCBC said. The bid values Wing Hang at 2 times its book after stripping out the revaluation of property assets and its final dividend for 2013, based on data provided by the Hong Kong bank on 1 April.

That offers a more comparable valuation to Yue Xiu Group’s US$1.5 billion offer to buy a majority stake in family-owned Chong Hing Bank, since the two lenders use different methods for valuing their properties. Yue Xiu’s bid, approved by Hong Kong’s banking regulator on 9 January, valued Chong Hing at 2.1 times its 30 June 2013 book, data compiled by Bloomberg show.

Stock Sale

OCBC’s offer will be funded by a combination of debt and equity, chief executive officer Samuel Tsien told reporters in Singapore on 1 April. The amount of stock to be sold will be determined after the completion of the deal, chief financial officer Darren Tan said at the same briefing.

“We see this transaction as dilutive for OCBC minorities in the short and medium term,” Jim Antos, a Hong Kong-based analyst at Mizuho Securities Asia, wrote in a note on 1 April. “However as OCBC will be seen as not overpaying, the negative impact on OCBC’s share price should be pretty mild.”

OCBC expects the purchase to add to per-share earnings and return on equity by 2017, the bank said on 1 April. Before taking into account any external funding, the takeover will lower OCBC’s common equity Tier 1 capital adequacy ratio to 11 percent from 14.5 percent, the lender said.

“At the group level, post-acquisition, profitability is going to be lower,” Matthew Smith, a Singapore-based analyst at Macquarie Group, said by phone. “They’re talking about value appreciating in year 2017. I think that’s a stretch. It’s going to be tougher to deliver real appreciation.”

Yuan Lending

Goldman Sachs Group, KPMG and Nomura Holdings are advising Wing Hang, while Bank of America Corporation is working with OCBC. Hong Kong lenders are proving attractive to mainland companies including China Merchants Bank as they seek expansion abroad. Foreign firms are interested in the city’s lenders to tap the Chinese market as the yuan becomes more widely used for finance.

Outstanding loans in Hong Kong made in China’s currency surged 46 percent last year to Rmb115.6 billion (US$18.6 billion), HKMA data show. Sales of yuan-denominated debt securities, known as Dim Sum bonds, rose 27 percent to Rmb344.3 billion.

Attractive Target

Wing Hang gives OCBC a network of about 70 branches spanning Hong Kong, Macau and mainland China. Its presence across southern China’s Pearl River Delta makes it a more attractive target than other smaller family-owned banks in the city, Grace Wu, an analyst at Daiwa Capital Markets Hong Kong, said by phone on 17 September 2013.

The acquisition will put OCBC “in a position to capitalise on increasing trade, capital and wealth flows between Greater China and Southeast Asia,” the companies said in the 1 April statement.

OCBC will keep all Wing Hang employees for 18 months after the deal is closed, according to the statement.

China Merchants Bank paid US$4.7 billion for the Wu family’s Wing Lung Bank in a deal completed in 2009. Three years earlier, China Construction Bank Corporation, the country’s second-largest lender, bought Bank of America Corporation’s Hong Kong and Macau unit for US$1.2 billion. In 2000, larger rival Industrial & Commercial Bank of China paid US$231 million for control of Union Bank of Hong Kong.

China Merchants Bank’s purchase of Wing Lung Bank valued the lender at 3.1 times book value, data compiled by Bloomberg show. Australia & New Zealand Banking Group’s chief executive officer Michael Smith, who lost in the bidding, called that ratio “crazy.”
Hong Kong banks remain overpriced, Smith said on 8 October 2013, describing a multiple of two times book value as “ridiculous at these times.”

Oversea-Chinese Banking Corp  11.090 -0.01 -0.09%   
Business: [FY18 Turnover] Global corporate/investment banking (35%), global consumer/private banking (34.8%), OCBC Wing Hang (11.5%), insurance (11%), global treasury & mkts (7.7%).

Insight: May-19, 1Q19 total income rose 14.7% driven by str... Read More
DBS Group Hldgs  25.490 -0.07 -0.27%   
Business: [FY18 Total Income] Institutional banking (43.7%), consumer banking/wealth management (42.9%), treasury markets and others (13.4%).

Insight: Apr-19, 1Q19 net profit rose 9% to a record $1.7b.... Read More

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