Bank of China (Hong Kong) weighs sale of Nanyang Commercial Bank
Nanyang Commercial Bank deal would help streamline the group's mainland operations
BOC Hong Kong (Holdings) is considering a sale of subsidiary Nanyang Commercial Bank that could fetch about US$6 billion, in a bid to stop cannibalising the business of its parent firm in China, sources said.
BOCHK is a unit of Bank of China, the country's fourth-biggest lender by assets, and a sale of Nanyang would help streamline the group's operations across the border, sources said.
As of June last year, half of Nanyang's loans were to Chinese customers, according to ratings agency Moody's.
An elimination of overlapping businesses could come as a boost for state-controlled Bank of China, which has seen a slowdown in profit growth and an increase in bad loans as the country's economic growth slows.
At US$6 billion, any sale would be the Asia-Pacific region's third-biggest bank deal, behind Australia's Westpac Banking Corp's US$17.9 billion purchase of St George Bank and Bank of America's US$7 billion purchase of a stake in China Construction Bank Corp, both in 2008.
One potential buyer interested in Nanyang was China Cinda Asset Management, China's second-biggest bad debt manager, which listed in Hong Kong in December 2013, sources said.
Cinda was keen to buy a bank because unlike its biggest rival, Huarong Asset Management, it did not yet own one, one source said. Having a bank would help Cinda tap cheap sources of funds to buy soured loans.
Nanyang has a book value of about US$4 billion and bankers estimate any deal could be struck at about 1.5 times price to book, a measure usually used for valuing bank deals. That compares with 1.8 times paid last year by Singapore's Oversea-Chinese Banking Corp for Wing Hang Bank in a US$4.9 billion deal.
A Nanyang sale could also attract interest from other state-backed financial institutions in China and some private enterprises, the sources said.
"If you're trying to build a financial empire, you want to get as many licences within your stable of companies as you can," Macquarie Group banking analyst Matthew Smith said. "They'd be talking about synergies, using the bank's branch platform as a means of selling funds and insurance."
BOCHK had discussed the potential sale internally but no final decision had been made, one source said.
In a filing with the Hong Kong stock exchange yesterday, BOCHK said: "The company is conducting a feasibility study to review its group's business and assets portfolio, the result of which may or may not lead to a disposal of certain banking assets."