Chong Hing sale talk puts others in the frame

An attractive deal would spur interest in the city's other three family-held banks

PUBLISHED : Monday, 12 August, 2013, 12:00am
UPDATED : Monday, 12 August, 2013, 4:04am

The possible sale of Chong Hing Bank, one of Hong Kong's four remaining family-controlled banks, could trigger more such acquisitions if the deal results in a healthy premium above the market price, analysts said.

Chong Hing, the smallest of the four, said last week it had received overtures from an unnamed third party. Yue Xiu, an investment arm of Guangzhou's city government, is reportedly a suitor for the bank, founded in the late 1940s.

The other three family-controlled and publicly traded banks are Bank of East Asia, the biggest, run by David Li Kwok-po, followed by Wing Hang Bank and Dah Sing Banking.

In response to an inquiry by the South China Morning Post about any plans to find a buyer for Wing Hang, a spokeswoman said the bank would be "open-minded about any [merger and acquisition] issue and will separately consider each proposal beneficial to shareholders".

A spokeswoman at BEA declined to comment on a "hypothetical" sale. Dah Sing was not available for comment.

If it is indeed Yue Xiu, a non-financial company, that is trying to acquire Chong Hing, analysts said this deal would signal Hong Kong banks had become even more attractive in the past few years since the last acquisition of one by a mainland bank in 2008.

"A non-financial company also showing interest is positive and could lead to a scarcity premium for remaining players," Deutsche Bank analyst Franco Lam said. "The remaining mid-cap banks might want to consider selling their banking franchises earlier rather than later, as the M&A price premium may well decline further."

Foreign banks have been reluctant to pay a high premium for the family-controlled banks over the past few years as they saw limited room for revenue growth.

"Non-bank companies may be able to pay a higher premium," Lam said.

He said the news could act as a support for local banking shares as a whole.

In the past 13 years, the price-book ratio of Hong Kong's bank acquisitions averaged 2 times. However, most of the deals, especially the smaller ones, took place at a ratio of 1.2 to 1.5 times.

Lam estimates a ratio of 1.5 to 2 times for Chong Hing, citing local family banks' inability to capture as much cross-border business as the mainland banks.

Mizuho Securities Jim Antos noted China Merchants Bank bought Wing Lung Bank in 2008 for about 2.9 times book value.

As for which local bank might be the next takeover target, Daiwa analyst Grace Wu said Dah Sing was the most attractive in terms of valuation and the health of its balance sheet.