Bank of East Asia Share Sale to Sumitomo Raises $426 Million

Bank of East Asia Ltd., Hong Kong’s largest family-run bank, agreed to sell new stock to Sumitomo Mitsui Banking Corp., raising HK$3.3 billion ($426 million) to bolster its capital as it seeks to expand in mainland China.

Sumitomo Mitsui, a unit of Japan’s second-biggest bank by market value, will pay HK$29.59 each for 111.6 million shares, according to a filing yesterday by the Hong Kong-based bank to the city’s stock exchange, doubling the stake to 9.5 percent.

Japan’s three so-called megabanks are accelerating efforts to boost lending abroad as domestic loan demand growth slows. Bank of East Asia, the second-largest foreign bank in mainland China by branches as of last month, may need to sell more shares to maintain its capital, according to Sanford C. Bernstein & Co.

“We would not be surprised to see the bank issue additional equity as its capital adequacy ratios remain low relative to peers,” analysts led by Mike Werner wrote in a note today. Sanford has a “market perform” rating on the stock.

Bank of East Asia climbed 2.9 percent to HK$30.55 at 11:39 a.m. in Hong Kong. The shares have gained about 4 percent this year, trailing the benchmark Hang Seng Index (HSI)’s 20 percent advance. Sumitomo Mitsui rose 0.3 percent to 2,660 yen in Tokyo today.

Working Capital

The Hong Kong bank led by Chief Executive Officer David Li “currently intends to apply the net proceeds as general working capital” and for expansion, it said in the filing.

Sumitomo Mitsui Financial Group Inc. (8316), helmed by President Koichi Miyata, has been seeking to buy assets abroad to counter economic stagnation and shrinking loan profitability at home.

“This additional share purchase is aimed at expanding our business base in the greater China area,” Tokyo-based Sumitomo Mitsui said in a statement today.

The Japanese bank’s investment may fuel speculation that Bank of East Asia could be sold, Citigroup Inc. analysts said.

“The mixed shareholder structure may continue to trigger market speculation about a potential takeover, offering support to the share price,” Hong Kong-based analysts led by Gary Lam wrote in a research report today.

Bank of East Asia’s biggest shareholders are Spain’s CaixaBank (CABK) SA and Guoco Group Ltd. (53), the Hong Kong-based investment company controlled by Malaysian billionaire Quek Leng Chan, according to data compiled by Bloomberg based on filings made earlier this year.

Sumitomo Mitsui received U.S. Federal Reserve permission on Oct. 31 to increase its stake to as much as 9.9 percent from the previous 4.7 percent.

Members of the Li family will hold at least 7.58 percent of the bank after the sale, according to last night’s filing. That includes 2.58 percent held by David Li, whose grandfather co- founded the bank in 1918.

David Li has been CEO of Bank of East Asia since 1981, according to its 2011 annual report. His sons Adrian Li and Brian Li are two of the bank’s four deputy chief executives after being promoted to the role in 2009.

To contact the reporters on this story: Joshua Fellman in New York at jfellman@bloomberg.net; Stephanie Tong in Hong Kong at stong17@bloomberg.net

To contact the editor responsible for this story: Chitra Somayaji at csomayaji@bloomberg.net

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.