Patient predator stalking HK's largest local lender
The animal is being stalked. The predator is patient, infamously patient.
No, it's not about how crocodiles hunt. It's about the ongoing wrestling between the city's largest local lender, Bank of East Asia (BEA), and Guoco Group, the empire of Malaysian tycoon Quek Leng Chan.
Ever since the bank's share price was hit by the financial crisis and a bank run in October last year, Guoco has been accumulating the stock.
It did not stop when bank chairman David Li Kwok-po made it clear he would not sell. It did not stop when the bank's largest shareholder, Spanish bank La Caix, which owns 12.164 per cent, signed a pact with BEA promising not to sell to a single investor and to side with the Li-led board.
Between July and Thursday, Guoco spent a further HK$1.4 billion on BEA stock, bringing its total holding in the bank to 8.01 per cent, an investment worth HK$2.8 billion.
What is Guoco up to? Investment bankers who know Quek said they would be surprised if he was only in for a quick profit.
The Queks have always wanted BEA. In fact, immediately after the non-competitive clause in its sale of Dao Heng Bank expired in 2003, Guoco approached the Li family, a former investment banker involved in the pursuit said.
On the surface, BEA looks a difficult, if not impossible, target, given the political and business clout of the Li family. Yet, while other tycoons maintain a dominant control over their empires, the Lis do not.
Founded by the great-grandfather in 1918, the bank has seen its control dispersed among sons over the years. According to stock exchange records, eight members of the family own a total of 14.41 per cent and no more than 3 per cent each. Not all are die-hard supporters of the bank like David Li, who has lifted the small lender into the top league since taking the helm in the 1980s.
Records show that while Li has spent a fortune raising his holding in the bank over the past six years, a few of the others have been cashing in - it even happened late last year when BEA was hit by the bank run.
So it wasn't surprising that when Quek made his offer in 2003, some family members were inclined to grab it, said the ex-banker. Li eventually mustered enough support to say no, arguing that the price was too low. But the rift was there.
Quek didn't force the issue. His determination to elbow his way back into the Hong Kong banking industry was, however, crystal-clear. He sold Dao Heng, which he'd spent 10 years building, in 2001 because the price was simply too good to refuse: 3.5 times price to book and HK$46 billion in cash.
In Guoco's latest annual report, Quek said: 'The correction since late 2007 has brought down valuations to more realistic levels ... We intend to deploy more funds into the market over time to take advantage of the eventual recovery in asset value and further build up our core business.'
BEA's share price has sharply rebounded from the HK$12.20 year low to HK$28.70 yesterday, yet it is still trading at 1.6 times price to book.
Sure, Li is a well-known fighter. He is also the banker with the strongest political clout in town, if not in Beijing. But as an investment banker puts it: 'The Quek family is famous for its patience.'
One example is the acquisition of BIL International (now Guoco Leisure), a Singapore-listed firm that ran the Thistle hotel chain in Britain. It took Guoco eight years to grab it. Guoco acquired 20 per cent of BIL during the 1997 financial crisis. Quek became a director. Then, when the BIL founder retired in 2001, Quek became the non-executive chairman. The market did not expect any more after that.
But in 2005, after acquiring a further 10 per cent stake from a private equity fund, Guoco jumped on its prey with a HK$7 billion takeover bid. It was not expected to be smooth sailing, because 7.4 per cent of BIL was controlled by Oei Hong Leong, the Singapore tycoon who is a notoriously tough negotiator. But Quek succeeded. The hotel firm is now the third major business of Guoco.
Now the scene is set for a great fight. In the blue corner is politically powerful Li defending his family business. In the red corner is Quek, the patient predator with strong monetary triceps.
Bring in the interests of Beijing and the tricky question of whether the city's largest local bank should go to a non-resident, and the battle can only get better.
The result is anybody's guess, but one thing is sure - Quek wins either way. Having stocked up cheaply on BEA, he is already sitting on a 50 per cent return. Ironically, the bigger the fight Li puts up, the more the chips Quek will walk away with.
But if you want to count those chips, you will have to be very patient.