Singapore’s OCBC to buy Wing Hang Bank for HK$38.4b
Singapore lender taps into growing Southeast Asia-Greater China money flows with acquisition of city's second largest family-controlled bank
Oversea-Chinese Banking Corp, Southeast Asia's second-largest lender, has offered HK$38.4 billion to fully acquire Wing Hang Bank, the eighth-largest lender in Hong Kong, to tap into increasing money flows between Southeast Asia and China.
OCBC chief executive Samuel Tsien, the former chief executive of China Construction Bank's Hong Kong subsidiary China Construction Bank (Asia), said the acquisition would immediately lift China's contribution to group earnings to 16 per cent, from 6 per cent, with that contribution to rise as Wing Hang was integrated with the Singaporean bank.
"The flow [between North and Southeast Asia] we currently see - a US$600 billion trade flow and a US$11 billion investment flow in 2013 alone - is a big market which only regional banks will be able to tap into," Tsien said yesterday. "You need to have a presence in both areas before you can tap into that."
The purchase of Wing Hang, the second-largest family-controlled lender in the city after Bank of East Asia, gives OCBC an additional 70 branches in China - 42 in Hong Kong, 15 on the mainland and 13 in Macau - on top of its more than 450 branches, mainly in Southeast Asia, with 16 in mainland China and one in Hong Kong.
Tsien said OCBC intended to add more branches on the mainland. He also said there would be no redundancies at Wing Hang in the next 18 months.
OCBC said it intended to strengthen the local lender's treasuries, wealth management and bancassurance businesses to lift fee income's contribution to operating income to 40 per cent from just 21.4 per cent, far lower than the average of 35.7 per cent among Wing Hang's medium-sized rivals.
Guangzhou government-backed Yue Xiu acquired Chong Hing Bank, another family-controlled lender in Hong Kong, in February.
"Banks are targeting the Greater China business, but I don't think there will be a dramatic change of market share or much keener competition with the newcomers since the market is already very mature with the existing big players," said an analyst who requested anonymity.
OCBC is proposing to pay the Fung family and Wing Hang's other shareholders HK$125 a share, a 2 per cent premium to the last trading price.
It translates into 1.77 times the price-book value of the lender's consolidated net book value at the end of last year, but 2.02 times the adjusted book value excluding the lender's final dividend and property revaluation reserve.
Using a similar accounting treatment, Yue Xiu offered a price-book ratio of 2.08 for Chong Hing.
Grace Wu, an analyst at Daiwa Capital Markets, said the price for Wing Hang was "reasonable".
The purchase will reduce OCBC's tier-1 capital ratio to 11 per cent from 14.5 per cent.
OCBC said the acquisition would boost its profitability by 2017 and it planned to fund the purchase from internal resources and by raising debt and equity capital.
OCBC is the second Singaporean bank to gain a foothold in the city following DBS, Southeast Asia's largest lender, which paid US$5.4 billion for Dao Heng Bank in 2001. However, DBS suffered from at least S$2.1 billion in write-downs after the purchase.
Tsien said there were far more opportunities arising from integration between Hong Kong and the mainland than a decade ago, which created a lot of economic activity that would boost the banking industry.
A general offer was made for Wing Hang after OCBC received irrevocable undertakings for a stake of 50.66 per cent. The local lender will delist when the deal is completed.
The Fung family will receive HK$7.8 billion for its 20.25 per cent holding.
Wing Hang's shares rose 0.16 per cent yesterday to HK$123.20.