Update | Hang Seng Bank stock jumps on report it may sell stake in Chinese bank
Shares of Hang Seng Bank jumped to a six-year high on Wednesday after media reports that the Hong Kong-based lender is considering selling its 10.9 per cent stake in Industrial Bank.
The potential stake sale in the mainland lender follows reports that the Hong Kong unit of Bank of China is planning to offload its two mainland banking subsidiaries, Nanyang Commercial Bank and Chiyou Bank.
A stake of the reported size in Shanghai-listed Industrial Bank would be valued at US$4.8 billion, according to Shanghai Stock Exchange data.
Hang Seng Bank’s shares yesterday finished up 5.2 per cent to HK$143.50, the highest since October 2008; the benchmark Hang Seng Index rose 0.5 per cent.
“If a deal goes through the impact on Hang Seng Bank’s common equity tier-1 ratio (CET1) will be decisive, potentially as much as an 800-basis point boost, based on Industrial Bank’s current market value,” said Jim Antos, an analyst with Mizuho Securities.
“This would push up CET1 to over 15 per cent and eliminate any need to raise fresh funds in the next four to five years.
“This is a bold step for HSB, but it is the kind of decisive strategic action that ought to be taken.”
Hang Seng Bank bought a 15.98 per cent stake in Industrial Bank in 2003 for HK$1.62 billion. A rights issue in 2010 reduced the size of the stake.
This is a bold step for HSB, but it is the kind of decisive strategic action that ought to be taken
The bank in 2013 redefined its holding in the Fuzhou-based lender from associate to financial investment, generating a one-off accounting profit of HK$9.52 billion.
Bank of America Merrill Lynch said in a report that Hang Seng may pay a special dividend of HK$12 per share if the stake sale proceeded. This would boost its return on equity to 21 per cent from 16 per cent.
HSBC Holdings, which owns 62.14 per cent of Hang Seng Bank, may become the major beneficiary of an asset disposal if Hang Seng Bank used the sale proceeds for a share buy-back, the report said.
“The bank wishes to emphasise that no decision has been taken in relation to such strategic options and that a transaction may or may not arise from such review,” Hang Seng Bank said in a statement yesterday in response to the reports.
The lender’s net profit tumbled 54 per cent to HK$8.5 billion in the six months to June last year, due to a one-off accounting gain in the same period a year earlier and lower property revaluation. Hang Seng Bank’s net interest margin – the spread between funding costs and lending income – increased by 8 basis points to 1.92 per cent over the period, thanks to more favourable terms in corporate lending.
Aside from the prospect of increased interest rates, a sale of the Industrial bank stake would be a key catalyst for share gains, Credit Suisse said in a report last year.
Banks globally have been speeding up their restructuring plans to sell or shut down non-core assets, in part to streamline their operations and boost the level of capital required under the more stringent requirements of the Basel III international regulatory regime.
Asia-focused British lender Standard Chartered, which is reportedly looking to sell its retail business in the Philippines, pulled out of its institutional equities business last month as part of efforts to arrest a slide in profits.
Besides its investment in Industrial Bank, Hang Seng has 50 branches in mainland cities, including Beijing and Shanghai, according to its website.
Bloomberg reported that Hang Seng Bank could sell half its Industrial Bank stake initially and the rest later.
The mainland bank’s non-performing loans ratio rose 34 basis points year on year to 1.1 per cent in December last year, while its return on equity dropped 1.2 per cent to 21.19 per cent, according to the company’s latest annual results.
Industrial Bank’s Shanghai-traded shares dropped 2 per cent to 14.11 yuan yesterday, reversing earlier gains of 1 per cent, amid selling pressure on mainland financial stocks. HSBC’s shares rose 1.26 per cent to HK$72.40.
