BOCHK rises 9.7pc on news parent to lift stake
Shares of BOC Hong Kong (Holdings) rose as much as 10.59 per cent yesterday after mainland parent Bank of China said it planned to increase its stake in the banking subsidiary in the secondary market.
BOCHK closed at HK$8.70, up 9.71 per cent, while BOC ended unchanged at HK$2.57.
The nation's third-largest lender said it had no plans to change its Hong Kong unit's listing status when it announced on Tuesday that it would increase its holding in BOCHK in the next 12 months.
However, analysts did not rule out the possibility that BOC might privatise BOCHK in the long run. 'We do see merit in a future privatisation, which we cannot rule out perpetually,' said JP Morgan in a report.
It said that because of the small size of BOCHK, full privatisation would lead to modest earning accretion without any material impact on the group's Tier-1 capital ratio. However, it would allow the group to move upstream and better use BOCHK's excess capital to deliver improved returns on equity in both BOCHK and the group.
JP Morgan maintained its 'overweight' rating on BOC. It said BOC's plan to increase its stake in the Hong Kong unit illustrated its confidence in BOCHK's longer-term profitability and BOCHK's strategic importance to the group.
It added that even at a 40 per cent premium to BOCHK's recent share price, the return on investment under a 2010 forecast basis for the deal would still be 11.2 per cent, matching BOC's cost of equity.
Nomura estimated the potential cash needed by BOC for the share purchase would be about HK$7.7 billion, if its ownership was kept at less than 75 per cent, based on the closing price on March 31. BOC owns 65.77 per cent of BOCHK.
Meanwhile, Standard & Poor's said the proposed transaction would be ratings neutral on both lenders.