Wing Hang sale edges closer in OCBC move

Singaporean bank is said to have made a binding bid for the family-owned lender, drawn to HK's status as the gateway to the mainland

PUBLISHED : Saturday, 04 January, 2014, 1:54am
UPDATED : Saturday, 04 January, 2014, 4:27am

Oversea-Chinese Banking Corp, Southeast Asia's second-largest lender, is said to have placed a binding bid for Wing Hang Bank, taking the sale of Hong Kong's second-largest family-owned bank a step closer to completion.

The Singaporean bank could emerge as the frontrunner among the suitors, which are rumoured to include Agricultural Bank of China, China Minsheng Bank, Singapore's United Overseas Bank and China's Anbang Insurance.

If successful, OCBC could be the second Singaporean bank to enter the city since 2001, when DBS, the largest Southeast Asian lender, paid HK$4.3 billion to take over Dao Heng Bank.

"OCBC may be eyeing a big franchise in China in placing the bid," said Dominic Chan, an analyst at BNP Paribas. "It wants to follow DBS to expand the geographic footprint outside [the Association of Southeast Asian Nations]."

OCBC conducted due diligence and offered less than two times the book value, which Wing Hang was seeking, two people with knowledge of the matter said, asking not to be identified as the information is private.

The companies were discussing if they could bridge the valuation gap, the people said.

However, Chan said he was doubtful about the price OCBC was willing to pay.

"It may not be an aggressive bidder in the deal. People still remember DBS had paid a relatively high price [3.2 times the price-book ratio] to acquire Dao Heng but reported goodwill provision later," he said.

Buying Wing Hang would be OCBC's biggest acquisition.

It had to pay about US$6 billion to acquire Wing Hang if the price-book ratio was taken to be 2, representing 22 per cent of its entire market capitalisation of US$27 billion, Chan said.

OCBC declined to comment in an e-mailed reply to questions. Connie Leung, a Hong Kong-based spokeswoman for Wing Hang, also declined to comment.

The family of chairman and chief executive Patrick Fung Yuk-bun and Bank of New York Mellon, which together control 45 per cent of Wing Hang, first announced in September that they had entered into discussions with third parties to sell their stake.

Shares in Wing Hang edged 0.17 per cent higher to close at HK$117.20 yesterday before reports of OCBC's bid, outperforming the benchmark Hang Seng Index, which fell 2.24 per cent on the day.

OCBC, which gets almost two-thirds of its revenue from its home country, is stepping up overseas expansion as it seeks to offset the lowest lending margins in Southeast Asia.

Banks in Singapore have an average net interest margin of 1.77 per cent, according to data compiled by Bloomberg. While that is higher than Hong Kong's 1.73 per cent, the city is seen by lenders as a gateway to the mainland and a beneficiary of the increasing global use of the yuan.

Hong Kong's family-owned banks are thus attracting foreign buyers for the city's role as a gateway between mainland China and overseas markets despite keen competition in the banking industry.

Guangzhou's city government-backed Yue Xiu Group proposed in October to pay HK$11.6 billion for 75 per cent of Chong Hing Bank, the smallest family-owned bank in Hong Kong. The offer would translate into 2.08 times the price-book ratio of Chong Hing.