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Oversea-Chinese Banking Corp offered HK$38.4 billion ($5 billion) to buy Wing Hang Bank Ltd 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 Tuesday. That represents a 1.6 per cent premium to the last traded price on March 28. The family of Chairman Patrick Fung, Bank of New York Mellon Corp and other shareholders holding a combined 50.66 per cent 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 Ltd, OCBC's largest competitor in Singapore, offered $5.3 billion for Dao Heng Bank Group Ltd 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 Pte Ltd, 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 renminbi market."
Wing Hang Bank's investors will be entitled to a dividend of as much as 46 Hong Kong cents per share if the takeover is approved by stockholders, according to today's statement.
OCBC shares rose 0.4 per cent to S$9.55 as of 12:38 pm in Singapore. Wing Hang gained 0.2 per cent to HK$123.20 as of Hong Kong's trading break, as it resumed trading following a suspension. The lender's stock surged 49 per cent in the year through last week.
Exclusive talks
OCBC secured preliminary approval from the Hong Kong Monetary Authority for the acquisition, people familiar with the matter said on March 28, leading to an 8.9 per cent 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 1.77 times Wing Hang's "consolidated net book value" as of December 31, OCBC said. The bid values Wing Hang at 2.02 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 today.
That offers a more comparable valuation to Yue Xiu Group's $1.5 billion offer to buy a majority stake in family-owned Chong Hing Bank Ltd, since the two lenders use different methods for valuing their properties. Yue Xiu's bid, approved by Hong Kong's banking regulator on January 9, valued Chong Hing at 2.08 times its June 30 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 today. 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 today. "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 today. 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 Ltd., 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 Inc., KPMG and Nomura Holdings Inc. are advising Wing Hang, while Bank of America Corp. is working with OCBC.
Hong Kong lenders are proving attractive to mainland companies including China Merchants Bank Co. 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 115.6 billion yuan ($18.6 billion), HKMA data show. Sales of yuan-denominated debt securities, known as Dim Sum bonds, rose 27 percent to 344.3 billion yuan.
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 Ltd., said by phone Sept. 17.
The acquisition will put OCBC "in a position to capitalize on increasing trade, capital and wealth flows between Greater China and Southeast Asia," the companies said in today's statement.
OCBC will keep all Wing Hang employees for 18 months after the deal is closed, according to the statement.
China Merchants Bank paid $4.7 billion for the Wu family's Wing Lung Bank Ltd. in a deal completed in 2009. Three years earlier, China Construction Bank Corp., the country's second-largest lender, bought Bank of America Corp.'s Hong Kong and Macau unit for $1.24 billion. In 2000, larger rival Industrial & Commercial Bank of China Ltd. paid $231 million for control of Union Bank of Hong Kong Ltd.
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 Ltd.'s CEO Michael Smith, who lost in the bidding, called that ratio "crazy."
Hong Kong banks remain overpriced, Smith said Oct. 8, describing a multiple of two times book value as "ridiculous at these times."
DEAL DIARY
Here are a few details of the deal
* 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 Ltd offered $5.3 bn for Dao Heng Bank Group Ltd in April 2001
* OCBC's offer will be funded by a combination of debt and equity
