Yue Xiu makes offer for Chong Hing

Mainland investment firm proposes to pay HK$11.6b for 75pc stake in family-owned bank, setting benchmark for possible sale of Wing Hang

PUBLISHED : Saturday, 26 October, 2013, 2:56am
UPDATED : Saturday, 26 October, 2013, 2:56am

Mainland investment firm Yue Xiu Group is offering to buy 75 per cent of Chong Hing Bank, the smallest of Hong Kong's family-owned lenders, for HK$11.6 billion.

The proposed deal would mark the first acquisition of a Hong Kong family-owned bank since 2008, when China Merchants Bank paid 2.9 times the book value of Wing Lung Bank's assets to buy it from the Wu family in 2007. If concluded, just three major family-owned banks will remain in the city.

Yue Xiu, an investment arm of the Guangzhou city government, was named on September 16 as one of the potential buyers of Chong Hing.

Yue Xiu is proposing to pay HK$35.69 per share to Chong Hing's parent company, Liu Chong Hing Investment, which is owned by the Liu family.

The price translates into 2.08 times the price-book value of the lender's assets, but rises to 2.34 times after taking into account a special dividend, which was announced as part of the deal. Analysts had expected the offer to be at a price-book ratio of 2.2 to 2.3 times.

The proposed price per share represents a discount of 4.6 per cent to Chong Hing's last trading price and a 1 per cent premium over its average closing price for its past five trading days.

"Taking into account the dividends, the 2.3 times [price-book] ratio would be positive news to Wing Hang," said an analyst, referring to Wing Hang Bank's discussions with potential buyers.

The Chong Hing purchase hinges on the approval of Liu Chong Hing's shareholders and the Hong Kong Monetary Authority.

The special dividend will arise from Chong Hing's proposed sale of its headquarters building in Central to its parent firm, which will amount to HK$4.5195 per share if the deal is approved.

The 2.3 times [price-book] ratio would be positive news to Wing Hang

"This acquisition is consistent with the strategy of Yue Xiu's finance business and will be an important milestone in the development history of the group," Yue Xiu chairman Zhang Zhaoxing said in a statement yesterday.

Chong Hing, in a filing to the Hong Kong stock exchange yesterday, said there had been growing demand for cross-border financial services, which had led to the integration of financial institutions on the mainland and in Hong Kong. The 65-year-old bank would maintain its listing status after the sale and the dividend policy remain unchanged, it said.

The bank had a market share of just 1 per cent for both total deposits and loans in the city, according to Goldman Sachs research published this month. It has 52 local branches.

The three other family-controlled banks in Hong Kong are Dah Sing Bank, Wing Hang and Bank of East Asia.

Some analysts said the price for Chong Hing would be a benchmark for the possible sale of Wing Hang. Singapore's Oversea-Chinese Banking Corp, United Overseas Bank and Agricultural Bank of China are rumoured to be the potential suitors.

Trading in the shares of Chong Hing and Liu Chong Hing, which was suspended on Thursday, will resume on Monday.