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ANALYSIS

Singapore flexes muscles in bid to acquire assets with China footprint

Family-run banks succumb to tough market as Singapore firms look north for acquisitions

PUBLISHED : Wednesday, 02 April, 2014, 5:45am
UPDATED : Wednesday, 02 April, 2014, 5:45am

The sale of Wing Hang Bank to Singapore's Oversea-Chinese Banking Corp for HK$38.4 billion is almost the final chapter for Hong Kong's family-run banking dynasties.

A limited branch presence and intense competition for cross-border transactional deals make it difficult for family firms to compete against larger Chinese and international banking giants.

"For the family banks, [there's] tighter regulation and higher capital requirements but also the competitive landscape is getting more intense," said Daiwa Capital Markets Hong Kong analyst Grace Wu.

While the deal highlights the challenge of running a small banking firm in today's global economy, it also suggests a new assertiveness among Singaporean firms seeking Hong Kong assets with a mainland China footprint.

Singapore firms have been stumped not being able to tap into the big market in China
Kevin Au, Chinese University

Foreign direct investment into Hong Kong from Singapore hit HK$204.5 billion in 2012, a rise of 73 per cent from 2010, according to the Census and Statistics Department. That amount should soar further in light of recent deals.

Last month, Singapore's sovereign wealth group, Temasek, announced it was buying 24.95 per cent of Hutchison Whampoa retail arm AS Watson for HK$44 billion.

The deal was in place of a planned initial public offering for Watson, and leaves the door open for Temasek to increase its stake in the future. The retail chain's flagship brand, Watsons, operates more than 4,000 stores and more than 900 pharmacies across Asia, including on the mainland and in Taiwan.

Temasek said the deal was part of a wider effort to reweight its overall portfolio, with added exposure to the retail sector.

"Singapore firms have been stumped not being able to tap into the big market in China. If they have a foothold in Hong Kong, they can start spreading their wings," said Professor Kevin Au, an expert on family-run businesses at Chinese University.

Sonny Hsu, a financial institutions group analyst at Moody's, said OCBC was willing to pay a premium of 1.7 times book value for Wing Hang as Hong Kong was a "natural stepping off point for mainland companies" going international.

Hsu said it was too soon to point to any wider trend regarding Singapore investment in Hong Kong. On the same day as the Watson deal, mainland juice producer China Huiyuan Juice announced Temasek had bought US$150 million of its convertible bonds. They could be converted into a 7.68 per cent stake in Huiyuan.

Mapletree Investments, a Singapore-based real estate company with property trusts, bought a commercial site in Kwun Tong for HK$3.77 billion in January.

Last year, it bought a logistics site in Tsing Yi. The firm owns nine other properties in Hong Kong, including the Festival Walk shopping mall.

Since 2009, the Singapore dollar has strengthened 15 per cent against the Hong Kong dollar, making overseas acquisitions more compelling.

OCBC said in a statement the Wing Hang acquisition would provide it with a platform to grow its yuan-denominated businesses, and broaden its access to US dollar and Hong Kong dollar funds available in Hong Kong.

The city is the world's biggest offshore market for the yuan, which is gaining international prominence as the mainland economy continues to expand.

Only two Hong Kong family-run banks remain: Dah Sing Banking and Bank of East Asia.

The controlling families at both firms have expressed interest in selling - assuming the price is right. Both firms have family members in senior executive positions.

Last year, the Liu family-run Chong Hing Bank sold a 75 per cent stake to Guangzhou based Yue Xiu.

Hsu said Chong Hing and Wing Hang had weaker family succession plans than Dah Sing and Bank of East Asia.

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