A SPIN-OFF of Hongkong Bank by HSBC Holdings through a separate listing on the Hongkong stock exchange would realise a handsome result, says a local securities house.
Vickers Ballas Hongkong says in a recently released report that if the market rated Hongkong Bank's earnings on a level comparable with that of its subsidiary Hang Seng Bank - that is, at a price-earnings multiple of 15 - the bank would have a market capitalisation of $50 billion.
That would be equivalent to more than three per cent of the total market capitalisation, which currently stands at about $1.5 trillion.
The advantage to shareholders would be that they could choose to participate in the group's currently more attractive Asian banking operations, centred on its traditional cash-cow Hongkong, undiluted by recovering but historically wobbly businesses in North America, Europe and Australia.
Assuming the local market could absorb a public offering of the magnitude of Hongkong Bank, given the local stock exchange's stipulation that a minimum of 25 per cent of the shares of a listed company be in public hands, there are a number of ways such adeal could be structured.
Vickers Ballas suggests that a targeted share scheme - under which there would be a tax-free distribution of new shares designed to reflect the performance of Hongkong Bank, subject to the consent of existing shareholders - might be the most suitable approach.
Unlike a conventional de-merger, this would not involve the formal spinoff of assets or operations, which can involve sticky legal, administrative and operational obstacles.