By P.R. Venkat and Yvonne Lee
SINGAPORE-- Oversea-Chinese Banking Corp. has agreed to buy Wing
Hang Bank Ltd., a family-owned bank in Hong Kong for close to US$5
billion, the largest acquisition by the Singapore bank on
record.
Singapore's second-biggest bank by assets has offered to buy all
of Wing Hang Bank's shares for HK$125 (US$16.12) each, which
represent about a 1.6% premium to its Friday closing price, OCBC
said in a statement Tuesday. In Hong Kong dollar terms, the
acquisition would cost OCBC HK$38.43 billion.
The deal comes at a time of consolidation in Hong Kong's banking
sector. Late last year, Chinese conglomerate Yuexiu Enterprises
struck a deal to buy a majority stake in Hong Kong's Chong Hing
Bank for about $1.5 billion. Hong Kong has a handful of
family-owned banks competing in a market dominated by the likes of
HSBC Holdings PLC and Standard Chartered PLC.
"Hong Kong is fast becoming more competitive given increasing
presence of larger banks. Against this backdrop, we expect niche
banks will struggle to be meaningfully profitable," Morgan Stanley
said in a note.
OCBC and Wing Hang Bank began discussions late last year, and in
January entered exclusive talks, which were extended twice as they
wrestled over price. Wing Hang Bank's shares last traded at 1.7
times its forecast book value, but investors had expected OCBC to
pay a valuation of about 1.9 times to 2 times.
OCBC's acquisition is valued at close to 1.8 times its
non-adjusted price to book ratio. On an adjusted basis, which
includes dividend payments and property valuations, the value is 2
times to book.
Wing Hang Bank was founded in Guangzhou, the capital of
Guangdong province in mainland China, in 1937, by the patriarch of
the Fung family. It was moved to Hong Kong after World War II.
According to its website, Wing Hang Bank Group had total assets of
HK$214.3 billion at the end of December 2013.
For OCBC, buying Wing Hang will significantly boost the
Singapore bank's exposure to Greater China, raising its Chinese
loans to 25% of the Singapore bank's total, from about 15%
currently, UBS analysts estimate. It would also give OCBC a
foothold in Macau, which generates about 15% of Wing Hang's pretax
profit, as well as access to Greater China trade flows,
particularly from Southeast Asia. OCBC is building its presence in
China, having bought a 383 million Singapore dollar (US$299
million) stake in Shenzhen-listed Bank of Ningbo Ltd. earlier this
year. OCBC's biggest acquisition had been a US$1.46 billion
investment it made in 2009, when it bought ING Groep NV's Asian
private-banking assets. It rebranded the business as Bank of
Singapore.
"Without the opportunity presented by this [Wing Hang] potential
acquisition, I would expect OCBC to take a much longer period of
time, and encounter greater challengers with less certainty of
success," Samuel Tsien, chief executive of OCBC said. Once the deal
is completed, the Singapore bank will have access to 70 branches of
Wing Hang Bank which includes 42 branches in Hong Kong and 13 in
Macau.
Write to P.R. Venkat at venkat.pr@wsj.com
Mr. Tsien said the planned acquisition will also help OCBC
benefit from the continued internationalization of the yuan and it
expects the deal to be completed by August after getting necessary
approvals.
OCBC Chief Financial Officer Darren Tan said his bank is
planning to fund the acquisition using a mix of internal resources,
equity and debt. He said the bank has yet to decide on the amount
of equity it intends to raise for funding Wing Hang. Key
shareholders of Wing Hang Bank include the Fung family and BNY
International Financing Corp. OCBC said that along with key
shareholders, it has so far received acceptances of about
50.66%.
Wing Hang put itself up for sale last year and attracted
interest from Singapore's United Overseas Bank Ltd., Australia
& New Zealand Banking Group Ltd. and China's Anbang Insurance,
people familiar the matter said earlier.
"We believe the offer price represents an attractive opportunity
for our shareholders to realize the investment value of Wing Hang,"
Wing Hang Bank Chairman Patrick Fung said in a statement.
Shares of OCBC and Wing Hang rose Tuesday when it opened for
trade. Shares of the Singapore bank are now up at 0.3% at S$9.54
(US$7.58), while Wing Hang Bank is trading 0.08% higher at HK$123.1
apiece.
Write to P.R. Venkat at venkat.pr@wsj.com and Yvonne Lee at
yvonne.lee@wsj.com