LCH to spin off banking arm

LIU Chong Hing (LCH) Investment is to spin off the Liu Chong Hing Bank next month with a 25 per cent flotation to raise an estimated $1 billion.

Although the pricing has not been fixed, the market expects the new issue to reap about $1 billion in proceeds, based on an average price-earning multiple of about 11 times for medium-sized banks and the Liu Chong Hing Bank's potential profit growth.

The group says that by grouping banking operations and property interests in one listed vehicle, their individual values cannot be fully recognised.

LCH Investment will float the bank, in the biggest listing of its type in a decade, by issuing new shares representing 25 per cent of the enlarged issued share capital.

Schroders Asia, Morgan Stanley Asia and Wardley Corporate Finance have been appointed as sponsors of the issue.

LCH Investment will also distribute a portion of its shares in the bank to its existing shareholders in the form of a special dividend.

About 19.1 million bank shares are involved. This equals 4.8 per cent of the bank's enlarged share capital.

Existing shareholders of LCH Investment will also receive preferential entitlements when subscribing for the new bank shares on a basis of one new share for every 20 LCH Investment shares held.

The group believes that a separate listing will facilitate the bank's expansion through greater access to capital, enhanced status and market profile, and increased customer awareness.

The bank is 73.9 per cent held by LCH Investment and 15 per cent-owned by Mitsubishi Bank of Japan.

After listing, LCH Investment's shareholding will be reduced to 50.6 per cent and Mitsubishi Bank's shareholding will fall to 11.3 per cent.

Members of the Liu family, who hold 65 per cent of LCH Investment, will increase their direct holding in the bank from seven to 8.3 per cent. Public shareholders will get 29.8 per cent of the new bank's shares.

Mitsubishi Bank has agreed to continue holding at least 10 per cent of the bank's enlarged share capital. Together with LCH Investment, both parties have undertaken to hold not less than 50.1 per cent of the bank's shares.

After the flotation, LCH Investment's principal activity will be property development, an interest in the bank, a small insurance agency and an underwriting operation.

Liu Chong Hing Bank, established in 1948, deals mainly in corporate and retail banking.

It has 30 branches in Hong Kong, a depositary agency in San Francisco, a branch in Shantou, and a representative office in Shanghai. It owns 22 of its branches.

The bank has total assets of $16.7 billion and shareholders' funds of $2.4 billion.

Its loan portfolio for corporate clients focuses on providing working capital, trade financing and facilitating purchase of commercial properties for own use.

The bank reported a 32 per cent jump in profit last year, from $207.3 million to $273.4 million.

Return on assets rose from 1.07 per cent in 1989 to 1.64 per cent in 1993, much in line with the industry average.