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David Evans

The Development Bank of Singapore (DBS) has beaten rival domestic and international banks for control of Kwong On Bank and will push forward with a general offer.

 DBS, Singapore's flagship bank, said it would purchase a 65 per cent stake, estimated to be worth HK$2.31 billion, held by the bank's four biggest shareholders.

 Amid rampant speculation of a rationalisation within the second-tier banking sector in Hong Kong, Kwong On has been singled out as a prime target for takeover.

 It has won the attention of many potential suitors with names mentioned including ABN Amro, BankAmerica and Dao Heng Bank.

 Shareholders are being offered cash of HK$9.50 a share or a choice between two cash and share alternatives.

 Terms for the alternative offers are HK$9 cash and a 'contingent unit'; or for every six Kwong On shares, five cash and contingent units and one share in DBS Group Holdings (Hong Kong), a DBS bank wholly owned subsidiary.

 The contingent unit is an option that links the ultimate valuation of the bank to its level of non-performing assets up to June 30, 2000.

 DBS yesterday said the option was designed to protect it from 'the financial impact of further asset quality impairment in Kwong On Bank'.

 Kwong On has 375 million issued shares worth HK$3.56 billion, based on the HK$9.50 per share cash bid.

 Fuji Bank has undertaken to accept the second payment option of HK$9 cash and a contingent unit per share. It will receive about HK$1.5 billion cash up front for its 44 per cent attributable shareholding and a further unspecified cash payment in 18 months.

 In addition to Fuji, the other leading shareholders are Kwong On Holdings and members of the Leung family, founders of the bank, and the Chang family.

 DBS's willingness to forge a long-term relationship with the Leung family is understood to have weighed heavily during talks on the deal. Ronald Leung Ding-bong will remain Kwong On chairman.

 The Kwong On purchase will give DBS access to 33 branches in Hong Kong. DBS already holds a 10 per cent minority stake in Wing Lung Bank in Hong Kong but has grown frustrated over lack of management influence.

 Vickers Ballas Securities banking analyst in Singapore Lim Beng Eu said: 'Over the long term it should be positive if they can integrate Kwong On with their other businesses.'  Cash-rich DBS has been on an aggressive acquisition trail over the past year, exploiting Asia's regional banking misfortunes to expand.

 Earlier this year it bought a 50.27 per cent controlling stake in Thai Danu Bank in Thailand. This was after taking large stakes in Bank of South East Asia in the Philippines and DBS Buana Bank in Indonesia.

 Mr Lim said: 'DBS has plans to become a very large bank in the region and it plans to achieve it through acquisitions. It is quicker that way.'  Some analysts believed the deal was a distressed sale by Fuji Bank.

 South China Brokerage research analyst Lachlan Christie said Fuji was under some stress but would survive and was disposing of its Kwong On interests as part of a strategy to end offshore retail banking.

 'Fuji will receive about US$200 million for its stake in Kwong On, which is minor compared to its shareholders' funds of US$8.5 billion.'  DBS embarked on a S$1 billion (about HK$4.69 billion) rights issue earlier this year to finance expansion.

 Analysts believe just S$300 million of this has been spent so far.



Singapore giant snares Kwong On