Bank of East Asia (BEA) shares rose yesterday as a share sale to Japan's Sumitomo Mitsui Banking cleared uncertainty over a capital shortage and fuelled speculation about a takeover.
The stock jumped as much as 5.39 per cent before closing 2.19 per cent higher at HK$30.35 yesterday, just topping the 2.16 per cent gain in the Hang Seng Index.
BEA, Hong Kong's third- largest lender by market value, controlled by chairman David Li Kwok-po and his family, said on Tuesday it agreed to sell 111.57 million new shares to Sumitomo Mitsui at HK$29.59 apiece for about HK$3.3 billion.
The Japanese bank's stake in BEA will double to 9.5 per cent from 4.73 per cent.
Nomura said in a research note yesterday the share sale would remove any uncertainty about the need for further capital in the near term, as BEA's tier one ratio would stay above 10 per cent. BEA's capital adequacy ratio dropped 50 basis points to 13.2 per cent in this year's first half from last year's second half, and its tier one capital adequacy ratio fell 30 basis points to 9.4 per cent.
BEA's capital levels have been lower than those of its peers. The bank's management said in April after its annual general meeting that it would consider selling new shares to the public and undertake private placements to replenish capital.
Linus Yip, a strategist with First Shanghai Securities, said the uncertainty over the capital shortage has been cleared, and that would continue to support the stock price.
"I believe the bank may not need another capital boost in the short run," he said.
Sumitomo Mitsui will remain the third-largest shareholder of BEA after Spain's CaixaBank and Guoco Group, controlled by Malaysian tycoon Quek Leng Chan. David Li holds a 2.72 per cent stake.