Bank of East Asia

Elliott’s suit against Bank of East Asia draws to a close, pending verdict

Mr Justice Jonathan Harris to issue written judgement, expected in two to four weeks

PUBLISHED : Tuesday, 18 July, 2017, 5:49pm
UPDATED : Tuesday, 18 July, 2017, 10:59pm

The latest stage in a dispute between Bank of East Asia’s directors, and hedge fund Elliott Management, drew to a close in Hong Kong’s High Court on Tuesday, though no final judgement was reached.

Mr Justice Jonathan Harris, presiding over the case, said he would issue a written judgement, and do so “quickly”. It is expected in two to four weeks.

This latest instalment in the lengthy series of legal disputes saw barristers representing BEA’s directors asking that Elliott’s petition against them be “struck out”.

Explainer: What is Bank of East Asia and Elliott’s dispute about?

Elliott is petitioning the court to overturn an agreement BEA reached with two strategic shareholders as part of a share placement. Elliott alleges that the placements were made “for an improper purpose”.

Should Harris grant the strike out, that would be an end of the matter, though should he decide not to do so, it will continue to a trial.

The two shareholders are Japanese bank Sumitomo Banking Corporation (SMBC) , and Criteria Caixa, a Spanish investment fund which owns Caixa bank.

Under the agreements neither SMBC nor Criteria Caia can buy further shares in BEA, nor can they sell their holdings as a block.

Speaking in court on Monday, Charles Sussex SC, representing Elliott said the agreements with the two strategic investors had made the bank “takeover proof” and “entrenched the position of BEA’s management” whom he described as “sclerotic”.

Bank of East Asia raises HK$6.57 billion in share placement to Sumitomo Mitsui

Benjamin Yu SC, representing the BEA directors , said on Monday that Elliott’s primary purpose in having their agreement with the two strategic shareholders overturned was to achieve its publically stated aim that the bank put itself up for auction.

He argued that this constituted a “collateral purpose”, which could also be described as an “improper purpose”

“The unvarnished truth is that the two things should be taken as being linked together,” he said.

“It is plain and clear that the purpose of the petition is to facilitate the sale of the bank.”

Elliott currently owns 8 per cent of BEA, according to data from Thomson Reuters.

It has been increasing its stake in the bank, and announced in a filing to the Hong Kong Stock Exchange on 4 July that its stake in the bank had exceeded 8 per cent, a development first reported by Reuters.

It is plain and clear that the purpose of the petition is to facilitate the sale of the bank
Benjamin Yu SC, representing the BEA directors

Elliott’s stake was last publicly disclosed in December 2015, when it crossed the 7 per cent mark. Under Hong Kong regulations investors only have to disclose stakes when they move through a whole percentage level.

Yu alleged that this demonstrated that Elliott’s petition was for the purpose of making a profit on its investment should the bank be sold at a price above its current book value.

“Elliott’s plan is not to right a wrong, but to make a profit,” he said.

Representing Elliott, Sussex said that the fact that it may or may not wish to see BEA sold did not make its petition to overturn BEA’s agreements with SMBC and Criteria Caixa improper.

In response to the suggestion that the case was a stepping stone towards demanding that BEA be put up for sale he said: “Even if it is a stepping stone, then that does not make it an improper purpose.”

He said that the investor wanted to put “BEA in the position in which it should be that is ‘without handcuffs’”.

Elliott would be unhappy about the agreements, regardless of its desire for takeover, he said, adding that the agreements between BEA and the two strategic investors had an effect on the bank’s share price since they made a takeover less likely.

On Tuesday, Sussex said that the purchasing of the shares was to “gain greater influence in the democracy, as it purported itself to be, of a general meeting [of BEA]”.

At present, SMBC has a 18.7 per cent stake in BEA and Criteria Caixa a 17 per cent stake. The bank’s chairman and chief executive, David Li Kwok-po owns 3.25 per cent, while other Li family members combined own close to a further 3 per cent of the bank. The bank’s third largest shareholder, Malaysian conglomerate Guoco owns 13.5 per cent.

The court also heard submissions by representatives of both sides on the question of whether Elliott can publish the BEA directors’ response to their petition on its website,

Elliott have already published their petition on the site.

Jose-Antonio Maurellet SC, representing Elliott in this regard said today that Elliott wanted “a full and fair flow of information.”

“Not just the petition, but also the defense should be made available to shareholders both present and future,” he said.

Harris said that he would also issue a written decision on this question.