Wing Hang confirms talks on takeover

Investors dump shares in HK lender amid concerns over low offer from OCBC

PUBLISHED : Tuesday, 07 January, 2014, 1:46am
UPDATED : Tuesday, 07 January, 2014, 3:39am

Wing Hang Bank confirmed it is holding exclusive talks with Singapore's Oversea-Chinese Banking Corp, Southeast Asia's second-largest lender, about a possible takeover after shares in the Hong Kong lender yesterday posted their biggest drop in almost 20 months.

The market was disappointed because some investors expected an offer valued at about two times Wing Hang's price-book ratio, but OCBC was rumoured to have offered less than that.

In the most recent takeover of a family-owned bank, mainland investment firm Yue Xiu offered a price-book ratio of 2.08 for Chong Hing Bank last year.

Wing Hang, the second-largest family-owned bank in the city with a market capitalisation more than double Chong Hing's, said in a filing to the stock exchange yesterday that it would "engage exclusively with OCBC to seek to finalise the terms for a possible transaction".

Shares in Wing Hang fell as much as 6.1 per cent to HK$110 yesterday. They last traded at HK$115.60 before being suspended late in the morning. The stock will resume trading today.

No binding agreement had been reached, the Hong Kong lender said. Exclusive talks between the two parties on a general offer by OCBC for all of Wing Hang's shares could last until January 31.

Assuming the final price is set at 1.8 times book value, a successful suitor would have to pay HK$36.7 billion for Wing Hang's 307.4 million shares, translating into HK$119.52 per share.

"Institutions are becoming more cautious over the price when acquiring other banks," said Jack Chan, a managing partner of financial services at EY Greater China.

"A massive deal may drag down the capital adequacy ratio by several basis points, which the banking industry is viewing very seriously in the light of Basel III requirements."

Under Basel III rules, banks have to hold more capital if they have equity investments in other lenders, making such investments more expensive.

OCBC might need to raise equity capital to finance the acquisition, Maybank Kim Eng Securities analyst Steven Chan wrote in a report yesterday.