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OCBC’s Rights Issue – Good Or Bad?
Tradeable, Tradeable Ideas | 21 August 2014
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By: Raymond Leung
Articles (142) Profile
  1. OCBC just announced a rights issue to fund its acquisition of Wing Hang Bank.
  2. OCBC is expected to raise $3.37 billion via the rights issue ($7.65 per share, roughly 25% discount to current price levels).
  3. According to MacQuarie, this funds raised by the rights issue is still insufficient for OCBC to meet Basel III requirements.

Analysts' updates on OCBC

Earlier this week, Oversea-China Banking Corporation (OCBC) announced that it is seeking to raise funds for its acquisition of Wing Hang Bank (WHB) through a rights issue. The ratio for this rights issue will be one new share for every eight shares held.

OCBC is expected to raise $3.37 billion via this rights issue with 440 million new shares at $7.65 per share. This price will translate to a 25.8 percent discount to the closing price of $10.31 on 19 August 2014.

Market watchers are holding a cautious view towards this right issue due to various factors. For one, the size of this right issue exceeded the expectations of the market.

Analysts had anticipated the fund raising exercise to hit $2 billion instead of over $3 billion. In spite of the larger amount of funds being raised, some analysts remain doubtful if this will help OCBC meet its cash shortfall after the Wing Hang Bank acquisition.

The rights issue by OCBC to facilitate the Wing Hang acquisition has been met with some negativity lately.

No guidance was provided by OCBC regarding this problem when the announcement for the rights issue was made. Based on estimates by analysts from MacQuarie Research, there is still a $3.5 billion shortfall after the rights issue for OCBC to meet the Basel 3 requirements.

Further earnings dilution can be expected for investors due to the rights issue. In view of the various factors, analysts from MacQuarie Research are holding a bearish view towards OCBC and expect its price to fall to $8.20.

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Trained in fund management, Raymond is familiar with shares and various investment vehicles.

Please click here for more information about this author.

Oversea-Chinese Banking Corp  10.950 -0.08 -0.73%   
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

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