Bank of East Asia (BEA) said yesterday it had agreed to issue new shares to Japan's Sumitomo Mitsui Banking, a move seen as protecting the interest of the controlling Li family against a potential bidding war for BEA.
Meanwhile, Guoco, BEA's second-largest declared shareholder, has suspended its shares pending a possible privatisation.
Sumitomo Mitsui agreed to buy 111.57 million new shares at HK$29.59 per share for about HK$3.3 billion. BEA closed at HK$29.70 yesterday.
"The new share issue would dilute some existing shareholder's holding and protect the Li family's control of BEA," said a banker at a major investment bank in Hong Kong who did not want to be named.
The Japanese lender's stake in BEA will rise to 9.5 per cent from 4.73 per cent and will remain the third-largest declared shareholder. Spain's CaixaBank, an ally of chairman and chief executive David Li Kwok-po's family - which, under listing rules, does not have to declare its holding - has 17.1 per cent and is the largest external shareholder.
Guoco, which holds 15.26 per cent, has long been rumoured to have an eye on Hong Kong's third-largest bank which was founded by the Li family in 1918.
Malaysian tycoon Quek Leng Chan has been buying the blue-chip lender's shares on the market through Guoco, his Hong Kong-listed arm. Guoco acquired 6 per cent of BEA's shares on the market in July 2009 and has steadily increased its stake.
"Guoco has a track record of boosting its BEA holdings over the past few years. It is not surprising at all that it is eyeing a takeover bid for the bank given the stable long-term investment returns," said Ben Kwong Man-bun, the chief operating officer at KGI Asia.
Traders said the low valuation of cash-rich Guoco's shares prompted Quek to propose the firm's privatisation.
Shares of Guoco closed at HK$70.50 on Monday. The stock has fallen 2.42 per cent this year, compared with an 18 per cent gain for the Hang Seng Index in the same period.
Cash and cash equivalents of the firm, which comprise cash at banks and on hand, stood at US$1.71 billion on July 1, according to exchange filings.
Guoco reported a net loss of HK$1.29 billion for the year to June 30, compared with net income of HK$4.16 billion for the previous 12 months, as weaker markets trimmed profit from its property and financial units.
Quek, 69, is one of Malaysia's richest people.
Guoco partly owns one of Malaysia's biggest financial institutions, Hong Leong Finance. It also has a property arm, Guocoland, which is listed in Singapore.