Wing Lung soars on report of talks for mainland sale
Wing Lung Bank shares rose as much as 11.3 per cent to hit a historic intraday high of HK$98.90 yesterday after a report said the bank was in talks to sell itself to a mainland lender, which the bank later denied.
The stock of the family-run lender gave up some of the gains after the bank said there were 'no negotiations or agreements relating to intended transactions which are disclosable'. But it still ended the day at HK$95.50, up 7.48 per cent.
Analysts said Hong Kong's small and medium-sized banks would still be targets for lenders, including mainland banks, which want to expand in the city, and their low valuations could add to their attractiveness.
Ming Pao newspaper quoted sources as saying that the Wu family, which holds more than 62 per cent of Wing Lung Bank, had been in talks with potential buyers, including overseas and mainland banks. The paper said one of the Chinese lenders could have a 'good chance' to get the deal done. The paper quoted another source who indicated that China Construction Bank Corp, the mainland's second-largest lender, was one of the potential buyers.
A spokesman for the mainland lender declined to comment.
'It makes sense for mainland lenders who want to expand their business scale in Hong Kong, or make use of Hong Kong as a stepping stone to expand overseas business, to acquire a bank in Hong Kong,' said Dominic Chan, an analyst at CLSA.
He said some European financial institutions that wanted to enter the mainland market would also be interested in acquiring Hong Kong banks as a springboard.
According to CLSA, the price to book value of some small to medium-sized banks in Hong Kong ranges from 1.3 to 2.6 times. Mr Chan said the low valuations could make acquisitions less expensive.
However, Mr Chan said it would be much easier for buyers to acquire lenders such as Wing Hang Bank or Bank of East Asia rather than Wing Lung Bank, as it seemed that the Wu family was not keen to sell the bank.
Ryan Tsang Yee-king, a Standard & Poor's director for Greater China's financial institution ratings, said Hong Kong usually was the first choice for mainland banks seeking a base from which to diversify their business overseas.
'Lenders who have no international business experience would make use of Hong Kong as a springboard,' he said.
However, Mr Tsang said even though the valuations of some banks were low, that alone might not be enough to attract buyers.
'Different lenders have different business potentials, so the low valuation of certain banks may reflect that some of their businesses were not fully developed,' he said.
Bonnie Lai, an analyst at CCB International, said the book value of most Hong Kong lenders was not high. However, buyers always had to pay a premium in an acquisition, so the ultimate acquisition price might not be cheap, she said.
